Setting Bonus-Malus scales in segmented tariffs: a discussion on alternative approaches

The problem of determining the premium scale when a Bonus-Malus system is superimposed on the a priori ratemaking is dealt with in the actuarial literature according to different approaches. In this paper, we compare two of these approaches with the aim of enlightening that they meet two conceptually different criteria: a financial equilibrium criterion and a minimization criterion. An additional suggestion, still based on a minimization criterion, is proposed. Analytical and numerical results are developed and discussed