%0 Journal Article %A Gay, Roger %D 2017 %T The Power Principle and Tail-fatness Uncertainty %U https://bridges.monash.edu/articles/journal_contribution/The_Power_Principle_and_Tail-fatness_Uncertainty/5566996 %R 10.4225/03/59fbb52b8f94b %2 https://bridges.monash.edu/ndownloader/files/9667942 %K Exponential principle %K power principle %K constant risk aversion %K ratio premium %K stop-loss insurance %K 2004 %K 1959.1/2349 %K monash:2349 %X When insurance claims are governed by fat-tailed distributions, gross uncertainty about the value of the tail-fatness index is virtually inescapable. In this paper a new premium principle (the power principle) analogous to the exponential principle for thin-tailed claims, is discussed. Pareto premiums determined under the principle have a transparent ratio structure, cater convincingly for uncertainty in the tail-fatness index, and are applicable in passage to the extremal limit, to all fat-tailed distributions in the domain of attraction of the (Frechet) extreme-value distribution. Cover can be provided for part claims if existence of the claims mean is in doubt. Stop-loss premiums are also discussed. Mathematical requirements are very modest. %I Monash University