Allowance for cost of claims in bonus-malus systems

The objective of this paper is to make allowance for cost of claims in experience ra-ting. We design here a bonus-malus system for the pure premium of insurance con-tracts, from a rating based on their individual characteristics Empmcal results are presented, that are drawn from a French data base of automobde insurance contracts. KEYWORDS Bayesian and heterogeneous models Number and cost residuals. Bonus-malus for frequency of claims, average cost per claim, and pure premmm