Bonus-Malus Experience Rating and Rating Factors

When a bonus-malus (BM) system is superimposed on an a priori rating system, the premium applicable to a risk of a particular tariff class is adjusted by multiplying a base premium by a coefficient which depends on the BM class of the risk. In this way, the premium of risks belonging to different tariff classes but to the same BM class, are updated by the same coefficient when reporting the same number of claims. However, in alternative models of experience rating, e.g. bayesian or credibility models, these adjustments depend also on the a priori premium level (based on the other rating factors and except for the BM class). Moreover, in bayesian systems the a posferiori premiums become closer and closer as time goes on. In this paper some different approaches of assessing the base premiums in a BM system are considered in order to obtain the above mentioned properties.

KEYWORDS: Bonus-malus systems, Experience rating