In this paper, we provide a utility modeling approach to handle insurance pricing and evaluate the tradeoff between discount benefit and deductible level. | A utility theory approach for insurance pricing Accounting 2 2016 151 160 Contents lists available at GrowingScience Accounting homepage ac A utility theory approach for insurance pricing Mohsen Gharakhania Fatemeh Nasirib and Maysam Alizadehc a Department of Engineering Qom University Qom b Actuarial Science department Eco Colledge of Insurance Allameh Tabatabaie University Tehran Iran c Computational Social Science Program Department of Computational and Data Science George Mason University Fairfax VA USA CHRONICLE ABSTRACT Article history Providing insurance contract with deductible is beneficial for both insurer and insured. In Received December 5 2015 this paper we provide a utility modeling approach to handle insurance pricing and evaluate the Received in revised format tradeoff between discount benefit and deductible level. We analyze four different pricing February 16 2016 problems of no insurance full insurance coverage insurance with β deductible and insurance Accepted March 18 2016 Available online with a D-dollar deductible based on a given utility function. A numerical example is also used April 8 2016 to illustrate some interesting results. Keywords Insurance pricing Deductible Premium Discount Utility theory Franchise 2016 Growing Science Ltd. All rights reserved. 1. Introduction One of the essential responsibilities of insurance firms is to make up an insured for an incurred loss. When an insurance policy is issued there are some arrangements between policyholder and insurance firm for the amount of compensation. The insured may collect the full cover in exchange of a bigger premium that is he may be compensated thoroughly as a result of the occurrence of the special covered event. Basically another alternative may exist for insured to keep some part of loss known as franchise or some kind of deductible and collect a premium discount instead. Most of the insurance policies have a deductible clause which indicates .
