Determination of the optimal declaration time of insurance payors in Turkey

Insurance companies classify the insured according to their history of accidents. In accordance with the claims made to the insurance company within one year, the insured are assigned to different discount classes. An insured has two choices after an accident. The first choice is to pay all the cost associated with the accident itself and to be in a higher discount class the following year. If the insured chooses this alternative, he will pay a lower premium the following year. The second choice is to claim the costs from the insurance company. In this case, the insured faces up to pay an increased premium the following year although he avoids paying the cost just after the accident. In this study, the decisions which should be made by the insured who is exposed to the risk of having one or more accidents in a year are analyzed in consideration of the Turkish traffic insurance data. The problem has been modelled under the hypotheses of Markov decision processes. Policies have been determined in assocation with the possible decisions which are to be made by the insured. Linear plus exponential utility function family has been used to analyze the sensitivity of the insurance policy holders towards risk.