The Power Principle and Tail-fatness Uncertainty Gay, Roger 10.4225/03/59fbb52b8f94b https://bridges.monash.edu/articles/journal_contribution/The_Power_Principle_and_Tail-fatness_Uncertainty/5566996 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. 2017-11-03 00:15:38 Exponential principle power principle constant risk aversion ratio premium stop-loss insurance 2004 1959.1/2349 monash:2349