Bonus malus systems in motor insurance Michael Neeb 6 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 premium Region 1Region 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 Class Premium rate (SF1=100) M S155 SF1/2140 SF1100 SF285 SF370 …… SF1045 …… SF2430 SF2530  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 information Client New insurer Previous insurer Possibly 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