On the Convergence Rate of Bonus-Malus Systems

Under certain conditions, a Bonus-Malus system can be interpreted as a Markov chain whose n-step transition probabilities converge to a limit probability distribution. In this paper, the rate of the convergence is studied by means of the eigenvalues of the transition probability matrix of the Markov chain. KEYWORDS Bonus-Malus systems; rate of convergence; automobile insurance. Markov chains; eigenvalues;