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Deterministic analysis of the bonus-malus system

Author

Listed:
  • Barbara Cieślik

    (Szkoła Główna Handlowa w Warszawie)

  • Damian Sulik

    (Szkoła Główna Handlowa w Warszawie)

Abstract

Many books and papers have discussed the probabilistic analysis concerning the bonus-malus systems (BMS). However, the deterministic approach leads to similar results and is much easier and more understandable to both sides of the insurance contract: the insurers and the customers. Its simplicity is its power – deterministic analysis can show the insurer how their clients see their system and what is important to them when they are comparing and choosing among different BMSs on the market. This article presents an example of a deterministic analysis of two systems offered by UNIQA in Poland – the old one and the new one. They have been chosen as an illustration of one of the trends that can be observed in the Polish market – implementing systems that offer fast promotion to the best class. Surprisingly, our results indicate that the new system is not that attractive to better drivers. In fact, those who benefit more after the change are the worst drivers.

Suggested Citation

  • Barbara Cieślik & Damian Sulik, 2015. "Deterministic analysis of the bonus-malus system," Collegium of Economic Analysis Annals, Warsaw School of Economics, Collegium of Economic Analysis, issue 37, pages 283-304.
    • Handle: RePEc:sgh:annals:i:37:y:2015:p:283-304
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