Department of Finance
Journal of Actuarial Practice (1993–2006)
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Date of this Version
1993
Document Type
Article
Citation
Journal of Actuarial Practice 1 (1993), pp. 51-67
Abstract
Every mile traveled by a car transfers risk to its insurer. This paper posits that the product of a cents-per-mile rate based on class experience and the miles recorded on the car's odometer appropriately earns prepaid premium while the car is driven. Operation of a practical car-mile system is described briefly. To test the competing idea that driver-record pricing responds to known large differences in risk transfer, a model used to validate claim free discounts is reexamined with the car-mile as the measure of individual cost. Driver-record pricing is found to inflate car-year price-to-cost differences. Consequences of accident rate variability for a car-mile system are reviewed. The per mile cost of individual risk transfer is a class property because of the random nature of accidents. Driver-record pricing attempted on a per mile basis would amplify differences within classes.
Included in
Accounting Commons, Business Administration, Management, and Operations Commons, Corporate Finance Commons, Finance and Financial Management Commons, Insurance Commons, Management Sciences and Quantitative Methods Commons
Comments
Copyright 1993 Absalom Press