In most of Europe and Asia annual automobile insurance is determined by the bonus malus system. Each policyholder is givena number (state) and the policy premium is determined as a function of this state. A policy holder's state changes from year to year in response to the number of claims made by the policy hol Suppose the number of dlaims made by a particular policyholder in any given year, is a Poisson random varia Let. s(k) be the next state of a policyholder who was in state i in the previous year and who made k claims in The following table is a simplified Bonus-Malus system having 4 states. Next state if Annual Premium State O claims 1 claim 2 claims 3 or more claims 1 200 1 3 4 250 1 3 4 4.

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In most of Europe and Asia annual automobile insurance is determined by the bonus malus system.
Each policyholder is given a number (state) and the policy premium is determined as a function of this state.
A policy holder's state changes from year to year in response to the number of claims made by the policy holder.
Suppose the number of claims made by a particular policyholder in any given year, is a Poisson random variable with parameter A.
Let. si(k) be the next state of a policyholder who was in state i in the previous year and who made k claims in that year.
The following table is a simplified Bonus-Malus system having 4 states.
Next state if
Annual
State
O claims
1 claim 2 claims 3 or more claims
Premium
1
200
3
4
250
1
3
4
4
400
2
4
4.
4
4
600
4
4
4
For A =2
A. Find the mean time to return to state 1 (if you start in state 1):
(round to 2 decimals)
B. Find the expected annual premium for a random person after it has been with the insurance company for a while:
decimals)
(round to 2
1-
2.
Transcribed Image Text:In most of Europe and Asia annual automobile insurance is determined by the bonus malus system. Each policyholder is given a number (state) and the policy premium is determined as a function of this state. A policy holder's state changes from year to year in response to the number of claims made by the policy holder. Suppose the number of claims made by a particular policyholder in any given year, is a Poisson random variable with parameter A. Let. si(k) be the next state of a policyholder who was in state i in the previous year and who made k claims in that year. The following table is a simplified Bonus-Malus system having 4 states. Next state if Annual State O claims 1 claim 2 claims 3 or more claims Premium 1 200 3 4 250 1 3 4 4 400 2 4 4. 4 4 600 4 4 4 For A =2 A. Find the mean time to return to state 1 (if you start in state 1): (round to 2 decimals) B. Find the expected annual premium for a random person after it has been with the insurance company for a while: decimals) (round to 2 1- 2.
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