Bonus malus systems in motor insurance

Michael Neeb6 March 2008

2 Bonus-malus systems in motor insurance

Motor insurance rating and bonus malus systems

Rating factors to differentiate

between risks

Segments – groups of risks with

similar characteristics (risk premium)

Differences within segments remain

need for bonus malus systems

Basis of bonus malus systems:

claims frequency

Risk

premiumRegion 1 Region 2 ...

Vehicle

type 1

Vehicle

type 2

Vehicle

type 3

Vehicle

type 4

…

Simple rating structure

3 Bonus-malus systems in motor insurance

German bonus malus system – risk premium index

409

SF = “claims-free” (bonus class)

SF 1 = 100

4 Bonus-malus systems in motor insurance

Characteristics of bonus malus systems

ClassPremium rate

(SF1=100)

M 245

0 230

S 155

SF1/2 140

SF1 100

SF2 85

SF3 70

… …

SF10 45

… …

SF24 30

SF25 30

Classification according to claims

experience (period: 1 year)

Number of classes and period required

to reach maximum bonus

Ratio of highest to lowest bonus malus

premium

Beginners’ class

Reclassification at renewal

German bonus malus system

5 Bonus-malus systems in motor insurance

Development of the German bonus malus system (MTPL insurance)

6 Bonus-malus systems in motor insurance

Exchange of information

Correct assessment only at renewal exchange of information

between insurers required

Exchange of information limited

Common database not necessary

Client informs insurer

about his b/m class

Check of b/m

informationClient New insurer Previous insurerPossibly correction of

b/m class and premium

7 Bonus-malus systems in motor insurance

Summary / outlook

Bonus malus systems powerful instrument to assess

individual risk

Need for cooperation between insurers

Common database or multilateral agreements

Limited exchange of information

Improved underwriting quality for all insurers

Fairer premiums for policyholders.

Thank you for your interest!

Michael Neeb