Determination of the optimal premium of non-life insurance via the Stochastic Dynamic Programming method

Objective: One of the most important issues facing insurance companies is the determination of fair premium. The purpose of this study is to design a mathematical model for calculating the optimal insurance premium by maximizing the total expected discounted utility of the capital, considering the d...

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Autores principales:	Maryam Rostamian, Gholamhossein Golarzi, Asma Hamzeh, Nasrin Hozarmoghadam
Formato:	article
Lenguaje:	FA
Publicado:	University of Tehran 2020
Materias:	stochastic disturbance demand function average premium of the market Management. Industrial management HD28-70
Acceso en línea:	https://doaj.org/article/52409521359a46bf995eb0677fa3066f
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spelling	oai:doaj.org-article:52409521359a46bf995eb0677fa3066f2021-11-14T05:49:28ZDetermination of the optimal premium of non-life insurance via the Stochastic Dynamic Programming method2008-58852423-536910.22059/imj.2021.314448.1007802https://doaj.org/article/52409521359a46bf995eb0677fa3066f2020-12-01T00:00:00Zhttps://imj.ut.ac.ir/article_83187_ba0b5743f8d07e8f8f6d9a9bd1d3f71b.pdfhttps://doaj.org/toc/2008-5885https://doaj.org/toc/2423-5369Objective: One of the most important issues facing insurance companies is the determination of fair premium. The purpose of this study is to design a mathematical model for calculating the optimal insurance premium by maximizing the total expected discounted utility of the capital, considering the demand and competition of the non-life insurance market.Methods: In the first stage, the capital equation of the insurance company is defined which is derived from the sum of insurance income and investment income. Insurance income is measured via the difference between insurance premiums and related expenses over the year as a function of stochastic demand. Next, the Stochastic demand function is defined based on the number of insurance policies in the past year, the average premium of the market, company premium which is the control function and a linear stochastic disturbance or variables which are related to the demand function. Since the average premium of the market and disruptive are Stochastic, demand is Stochastic. Consequently, the optimal premium is calculated using the Stochastic Dynamic Programming, discrete-time framework via maximizing the total expected discounted utility of the capital.Results: The numerical results show that the optimal premium is directly related to the average market premium, previous year's demand, break-even premium and the expected expectation of stochastic disturbance. It was also shown that the expected sign of stochastic disturbance determines the optimal premium strategies.Conclusion: From the findings of this study, it can be concluded that insurance companies should determine the optimal non-life insurance premium in a competitive environment via using the expected value sign of stochastic disturbance, which is determined based on the demand function. The results showed that the expected value sign of positive stochastic disturbance indicates a decreasing demand and the insurance company should change the strategy of determining the optimal premium in order to expand demand.Maryam RostamianGholamhossein GolarziAsma HamzehNasrin HozarmoghadamUniversity of Tehranarticlestochastic disturbancedemand functionaverage premium of the marketManagement. Industrial managementHD28-70FAمدیریت صنعتی, Vol 12, Iss 4, Pp 655-671 (2020)
institution	DOAJ
collection	DOAJ
language	FA
topic	stochastic disturbance demand function average premium of the market Management. Industrial management HD28-70
spellingShingle	stochastic disturbance demand function average premium of the market Management. Industrial management HD28-70 Maryam Rostamian Gholamhossein Golarzi Asma Hamzeh Nasrin Hozarmoghadam Determination of the optimal premium of non-life insurance via the Stochastic Dynamic Programming method
description	Objective: One of the most important issues facing insurance companies is the determination of fair premium. The purpose of this study is to design a mathematical model for calculating the optimal insurance premium by maximizing the total expected discounted utility of the capital, considering the demand and competition of the non-life insurance market.Methods: In the first stage, the capital equation of the insurance company is defined which is derived from the sum of insurance income and investment income. Insurance income is measured via the difference between insurance premiums and related expenses over the year as a function of stochastic demand. Next, the Stochastic demand function is defined based on the number of insurance policies in the past year, the average premium of the market, company premium which is the control function and a linear stochastic disturbance or variables which are related to the demand function. Since the average premium of the market and disruptive are Stochastic, demand is Stochastic. Consequently, the optimal premium is calculated using the Stochastic Dynamic Programming, discrete-time framework via maximizing the total expected discounted utility of the capital.Results: The numerical results show that the optimal premium is directly related to the average market premium, previous year's demand, break-even premium and the expected expectation of stochastic disturbance. It was also shown that the expected sign of stochastic disturbance determines the optimal premium strategies.Conclusion: From the findings of this study, it can be concluded that insurance companies should determine the optimal non-life insurance premium in a competitive environment via using the expected value sign of stochastic disturbance, which is determined based on the demand function. The results showed that the expected value sign of positive stochastic disturbance indicates a decreasing demand and the insurance company should change the strategy of determining the optimal premium in order to expand demand.
format	article
author	Maryam Rostamian Gholamhossein Golarzi Asma Hamzeh Nasrin Hozarmoghadam
author_facet	Maryam Rostamian Gholamhossein Golarzi Asma Hamzeh Nasrin Hozarmoghadam
author_sort	Maryam Rostamian
title	Determination of the optimal premium of non-life insurance via the Stochastic Dynamic Programming method
title_short	Determination of the optimal premium of non-life insurance via the Stochastic Dynamic Programming method
title_full	Determination of the optimal premium of non-life insurance via the Stochastic Dynamic Programming method
title_fullStr	Determination of the optimal premium of non-life insurance via the Stochastic Dynamic Programming method
title_full_unstemmed	Determination of the optimal premium of non-life insurance via the Stochastic Dynamic Programming method
title_sort	determination of the optimal premium of non-life insurance via the stochastic dynamic programming method
publisher	University of Tehran
publishDate	2020
url	https://doaj.org/article/52409521359a46bf995eb0677fa3066f
work_keys_str_mv	AT maryamrostamian determinationoftheoptimalpremiumofnonlifeinsuranceviathestochasticdynamicprogrammingmethod AT gholamhosseingolarzi determinationoftheoptimalpremiumofnonlifeinsuranceviathestochasticdynamicprogrammingmethod AT asmahamzeh determinationoftheoptimalpremiumofnonlifeinsuranceviathestochasticdynamicprogrammingmethod AT nasrinhozarmoghadam determinationoftheoptimalpremiumofnonlifeinsuranceviathestochasticdynamicprogrammingmethod
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Determination of the optimal premium of non-life insurance via the Stochastic Dynamic Programming method

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