17Greatest Accuracy Credibility

17.1 Introduction

In this and Chapter 18, we consider a model-based approach to the solution of the credibility problem. This approach, referred to as greatest accuracy credibility theory, is the outgrowth of a classic 1967 paper by Bühlmann [19]. Many of the ideas are also found in Whitney [131] and Bailey [9].

We return to the basic problem. For a particular policyholder, we have observed n exposure units of past claims img. We have a manual rate img (we no longer use M for the manual rate) applicable to this policyholder, but the past experience indicates that it may not be appropriate (img, as well as img, could be quite different from img). This difference raises the question of whether next year's net premium (per exposure unit) should be based on img, on img, or on a combination ...

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