Under a bonus malus system, motor liability insurers can adjust policyholders’ premiums based on individuals’ claims histories. For instance, a customer may receive a reduction, or “bonus,” on a premium if no claim is made during the previous year. Conversely, the customer may receive a premium increase, or “malus,” if a claim is made during the previous year.
In this article, Milliman actuary Diana Dodu provides an analysis of bonus malus systems in several European countries. She highlights the similarities and differences between the system designs in each country.
Here is an excerpt:
• Countries that do not have a specific system defined by law, such as Poland, where the system is fully liberalised and insurers have the liberty to provide own risk coefficients and load back the premium to obtain balance; Estonia, where insurers can design their own rules and where it may seem that the maximum bonus can be achieved within several years of claims free driving; and Lithuania, where according to the Law on Compulsory Motor Third Party Liability Insurance effective from 17 May 2007, premiums are fixed by the insurer and companies can take into account risk factors.
• Countries where the bonus malus system is defined in the legislature, requiring insurers to take into consideration loss history, but which grant freedom to insurance companies to design their own rules, which is present in countries such as the Czech Republic and Slovakia.
• Countries that are regulated by law, such as Italy and Romania… and Hungary, where according to law NGM 21/2011, the number of classes are predefined as well as movement between classes depending on the number of accidents, and insurers are obligated to issue accident and claim certificates, but are also allowed to use historical data for the purposes of classification to calculate additional correction factors, and Serbia, where the bonus malus system is defined in the law on compulsory traffic insurance but insurers can use correction coefficients if they do not contradict the ones mandated by law.
• Countries such as Croatia, where there seems to be a defined system, but companies offer extra benefits such as additional bonuses above the maximum and protection of the bonus (after several years of no claims, insureds can pay an additional premium to protect the bonus in case they have an accident in the subsequent year), and Slovenia, where you can also protect your bonus, while the future premium in cases of protection of the bonus would depend on the number of accidents in past periods.
• Latvia, where companies can set premiums based on prior histories with a conversion system in which it seems that it is more difficult to move towards bonus classes and where the system is evaluated annually (on September 15).