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High Deductibles instead of Bonus-Malus: Can it Work?

Published online by Cambridge University Press:  29 August 2014

Jean Lemaire  and
Hongmin Zi
Jean Lemaire*
Affiliation:
Wharton School, University of Pennsylvania
Hongmin Zi*
Affiliation:
Wharton School, University of Pennsylvania
*
Department of Insurance, and Risk Management, Wharton School, 3641 Locust Walk, University of Pennsylvania Philadelphia, PA 19104-6218, U.S.A.
Department of Insurance, and Risk Management, Wharton School, 3641 Locust Walk, University of Pennsylvania Philadelphia, PA 19104-6218, U.S.A.
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Abstract

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Holtan (1994) suggests to replace traditional bonus-malus systems by a high deductible financed by a short-term loan. Practical consequences of this proposal are investigated here. Simulation is used to evaluate the efficiency of the Taiwanese Bonus-malus system and the variability of premiums of an average policyholder. Holtan's high deductible system is analysed under a compound Poisson assumption, with truncated exponential claims. It is shown that the introduction of a high deductible would increase the variability of payments and the efficiency of the rating system for most policyholders.

Keywords

Motor insurance ratingbonus-malus systemsdeductibles
Type
Workshop
Information
ASTIN Bulletin: The Journal of the IAA , Volume 24 , Issue 1 , May 1994 , pp. 75 - 86
Copyright
Copyright © International Actuarial Association 1994

References

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