Automobile Insurance Pricing Under The Reform Of Commercial Auto Insurance Premium Rate

— In a free market society, an entity offering a product for sale should try to set a price at which the entity is willing to sell the product and the consumer is willing to purchase it. Determining the supplier-side price to charge for any given product is conceptually straightforward. For many non-insurance goods and services, the production cost is known before the product is sold. Therefore, the initial price can be set so that the desired profit per unit of product will be achieved. Insurance is different from most products as it is a promise to do something in the future if certain events take place during a specified time period.While the technique for accurate ratemaking take a major role in the insurance development.In the general insurance(GI) market.motor insurance occupy almost seventy percents of the market,that make the motor insurance the leading role in the GI market.And with the evolution in the industry,accurate ratemaking techniques have become the major competition in different general insurance entity.Much of the early history of classification ratemaking was based on rudimentary methods such as univariate analysis and later iteratively standardized univariate methods such as the minimum bias procedures and also the linear regression model. As computing power and data capabilities evolved, pioneering insurance companies employed multivariate methods in their classification ratemaking and moved the entire industry forward. Generalized linear models have become the standard for classification ratemaking in most developed insurance market-s—particularly because of the benefit of transparency. Understanding the mathematical under-pinnings is an important responsibility of the ratemaking actuary who intends to use such a method.Linear models are a good place to start as GLMs are essentially a generalized form of such a model. While GLMs contribute a lot to the development of the technique of ratemaking.It also have the weak link that:1.GLMs still use the assumption that the systematic component is linear;2.GLMs can’t deal with the layering effect.Therefore,we introduce the generalized linear mixed model in ratemaking.