5. Experience pricing

For certain categories of insurance contract, the premium paid by the policyholder is likely to vary according to the observed claims experience. Determining the premium on the basis of past claims experience is known as experience rating. In general, the experience rating models used by insurers only take into account the number of claims for the previous year(s). Taking into account the cost of claims and, in particular, the proportion of the cost of claims that can be attributed to the insured is more delicate. In this section, we present a simple application of the mixed Poisson distribution to this type of situation, while distinguishing the stages in the solution.