Hostname: page-component-cd9895bd7-dzt6s Total loading time: 0 Render date: 2024-12-28T05:19:15.928Z Has data issue: false hasContentIssue false
  • English
  • Français

Community Rating and Equalisation1

Published online by Cambridge University Press:  29 August 2014

Walther Neuhaus
Walther Neuhaus*
Affiliation:
University of Copenhagen and MIRA Consultants Ltd.(Sydney)
*
Laboratory of Actuarial Mathematics, University of Copenhagen, Universitetsparken 5, DK-2100 Copenhagen Ø
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

Several countries have made community rating mandatory for certain lines of insurance, particularly health insurance. This paper offers a theoretical solution to the problem of designing equalisation schemes to support community rating in a market where different insurers are selling different benefit plans. The criterion chosen is that an equalisation scheme should minimise the opportunities for arbitrage between insurers, which community rating otherwise would generate. Several possible measures of arbitrage are presented, and the optimal schemes are compared against data from Australian health insurers. Finally, the approach is extended to partial community rating, for example unisex rating.

Keywords

ArbitrageCommunity ratingCredibility theoryEqualisationHealth insuranceRisk adjustment
Type
Articles
Information
ASTIN Bulletin: The Journal of the IAA , Volume 25 , Issue 2 , November 1995 , pp. 95 - 118
Copyright
Copyright © International Actuarial Association 1995

Footnotes

1

Paper presented at the Oberwolfach Conference on Risk Theory, 18th to 24th September 1994.

References

Department of Health of the Republic of Ireland (1994). Briefing Paper on Health Insurance Regulatory Framework in Ireland.Google Scholar
De Wit, G.W. and Van Eeghen, J. (1984). Rate making and society's sense of fairness. ASTIN Bulletin 14, 151–163.CrossRefGoogle Scholar
De Vylder, F. (1981). Practical credibility theory with emphasis on optimal parameter estimation. ASTIN Bulletin 12, 115–131.CrossRefGoogle Scholar
Dubey, A. (1994). Personal communication.Google Scholar
Gregorius, F.K. (1987). The insurance of hospitalisation and sickness in the Netherlands. Paper presented to the XX ASTIN Colloquium, Scheveningen.Google Scholar
Hesselager, O. (1988). Estimation of variance components in hierarchical regression models with nested classification. Working paper No. 69 from the Laboratory of Actuarial Mathematics, University of Copenhagen.Google Scholar
Jewell, W.S. (1980). Models in Insurance: Paradigms, Puzzles, Communications and Revolutions. Transactions of the 21st International Congress of Actuaries.Google Scholar
Neuhaus, W. (1995). Balanced Credibility Estimation. Working Paper No. 127 from the Laboratory of Actuarial Mathematics, University of Copenhagen.CrossRefGoogle Scholar
MacIntyre, D.M. (1962). Voluntary Health Insurance and Rate Making. Cornell University Press.Google Scholar
MIRA CONSULTANTS Ltd. (1993). Review of the Private Health Insurance Reinsurance Arrangements. Report prepared for the Department of Health, Housing and Community Services, Canberra.Google Scholar
MIRA CONSULTANTS Ltd. (1994). The Reinsurance Follow-Up Study. Report prepared for the Department of Human Services and Health, Canberra.Google Scholar
Thomson, P. (1994). Personal communication.Google Scholar