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Finance and Financial Management

Risk classification

1993

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Full-Text Articles in Insurance

Cost-Based Pricing Of Individual Automobile Risk Transfer: Car-Mile Exposure Unit Analysis, Patrick Butler Jan 1993

Cost-Based Pricing Of Individual Automobile Risk Transfer: Car-Mile Exposure Unit Analysis, Patrick Butler

Journal of Actuarial Practice 1993-2006

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 ...