A Stochastic Approach to Automobile Compensation

In recent years various automobile compensation plans have been proposed in response to adverse criticism of the existing automobile liability system. This paper is an effort to present a probability model which conceivably could provide the mathematical framework for some future no-fault insurance system. Before proceeding, it is only fair to warn that utilization of the proposed model for ratemaking purposes would have a far-reaching effect upon members of the Casualty Actuarial Society. It would mean counting accident involvement costs rather than claim costs. And finally, it would mean insuring an individual driver rather than an automobile.