Improving global elasticity of bonus-malus system
Improving global elasticity of bonus-malus system

Summary/Abstract: We optimize transition rules of bonus-malus system to achieve possibly best premium elasticity as defined by Loimaranta [1972] and later generalized as global elasticity by De Pril [1978]. We use premium scale given by Norberg [1976]. This issue constitutes a nonlinear non-convex discrete optimization problem. To solve this problem, we apply improved greedy optimization algorithm, similar to one proposed by Morlock [1984].We analyse systems of different size for portfolios characterized by inverse Gaussian risk structure function with various parameters. We also propose alternative measures of global elasticity.

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