- Statistical tools for non-life insurance
- Pages (from-to)
- Document type
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
Within the actuarial profession a major challenge can be found in the construction of a fair tariff structure. In light of the heterogeneity within, for instance, a car insurance portfolio, an insurance company should not apply the same premium for all insured risks. Otherwise the so-called concept of adverse selection will undermine the solvability of the company. 'Good' risks, with low risk profi les, pay too much and leave the company, whereas 'bad' risks are attracted by the (for them) favorable tariff. The idea behind risk classification is to split an insurance portfolio into classes that consist of risks with a similar profile and to design a fair tariff for each of them. Classification variables typically used in motor third party liability insurance are the age and gender of the policyholder and the type and use of their car.
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