Pay-As-You-Drive Insurance Pricing Model

TL;DR

This paper introduces theoretical models for Pay-As-You-Drive automobile insurance, linking premiums more closely to mileage and risk, using non-homogeneous Poisson processes to better understand collective risk.

Contribution

It provides new theoretical insights into Pay-As-You-Drive insurance models, especially using non-homogeneous Poisson processes to analyze risk distribution.

Findings

Derived distribution of discounted collective risk model

Analyzed non-homogeneous Poisson process in insurance context

Enhanced understanding of mileage-based premium structures

Abstract

Every time drivers take to the road, and with each mile that they drive, exposes themselves and others to the risk of an accident. Insurance premiums are only weakly linked to mileage, however, and have lump-sum characteristics largely. The result is too much driving, and too many accidents. In this paper, we introduce some useful theoretical results for Pay-As-You-Drive in Automobile insurances. We consider a counting process and also find the distribution of discounted collective risk model when the counting process is non-homogeneous Poisson.