Optimal premium pricing policy in a competitive insurance market environment

Athanasios A. Pantelous, Eudokia Passalidou

Research output: Contribution to journalArticleResearchpeer-review

Abstract

In this paper, we propose a model for the optimal premium pricing policy of an insurance company into a competitive environment using Dynamic Programming into a stochastic, discrete-time framework when the company is expected to drop part of the market. In our approach, the volume of business which is related to the past year experience, the average premium of the market, the company's premium which is a control function and a linear stochastic disturbance, have been considered. Consequently, maximizing the total expected linear discounted utility of the wealth over a finite time horizon, the optimal premium strategy is defined analytically and endogenously. Finally, considering two different strategies for the average premium of the market, the optimal premium policy for a company with an expected decreasing volume of business is derived and fully investigated. The results of this paper are further evaluated by using data from the Greek Automobile Insurance Industry.
Original languageEnglish
Pages (from-to)175-191
Number of pages17
JournalAnnals of Actuarial Science
Volume7
Issue number2
DOIs
Publication statusPublished - Sep 2013
Externally publishedYes

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