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Optimal Insurance Coverage under Bonus-Malus Contracts

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  • Holtan, Jon

Abstract

The paper analyses the questions: Should – or should not – an individual buy insurance? And if so, what insurance coverage should he or she prefer? Unlike classical studies of optimal insurance coverage, this paper analyses these questions from a bonus-malus point of view, that is, for insurance contracts with individual bonus-malus (experience rating or no-claim) adjustments. The paper outlines a set of new statements for bonus-malus contracts and compares them with corresponding classical statements for standard insurance contracts. The theoretical framework is an expected utility model, and both optimal coverage for a fixed premium function and Pareto optimal coverage are analyzed. The paper is an extension of another paper by the author, see Holtan (2001), where the necessary insight to – and concepts of – bonus-malus contracts are outlined.

Suggested Citation

  • Holtan, Jon, 2001. "Optimal Insurance Coverage under Bonus-Malus Contracts," ASTIN Bulletin, Cambridge University Press, vol. 31(1), pages 175-186, May.
    • Handle: RePEc:cup:astinb:v:31:y:2001:i:01:p:175-186_00
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    Cited by:

    1. Shi-jie Jiang & Feiyun Xiang & Iris Yang, 2023. "Effect of Prevention Focus on the Relationships Among Driving Accident History, Risk Perception, and Consumers’ Automobile Insurance Coverage Decisions," SAGE Open, , vol. 13(3), pages 21582440231, July.

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