The Minimum Bias Procedure: A Practitioner's Guide

The minimum bias classification ratemaking procedure, introduced by Robert Bailey and LeRoy Simon in 1960, determines rate relativities simultaneously for two or more classification dimensions. This paper summarizes the minimum bias procedure for the practicing actuary and provides the intuition for several bias functions:balance principle, least squares, Â-squared, and maximum likelihood. The exposition is structured around a series of illustrations using a two-dimensional private passenger automobile classification system: male/female and urban/rural.