Baykal, Kemal Burak Marmara Üniversitesi - Bankacılık ve Sigortacılık Yüksekokulu, Aktüerya Bölümü, Turkey , Bülbül, Serpil Ergün Marmara Üniversitesi - Bankacilik ve Sigortacilik Yüksekokulu, Aktüerya Bölümü, Turkey

OPTIMAL BONUS-MALUS SYSTEM DESIGN IN MOTOR THIRD-PARTY LIABILITY INSURANCE IN TURKEY: GOOD RISK/BAD RISK MODEL

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Bonus-malus systems are one of the most important instruments used in motor third-party liability insurance rating. The purpose of the bonus-malus system in the long term is to provide a fairness of the premiums paid by ensuring everyone pays a premium that corresponds exactly to their own claim frequency and to encourage policyholders to drive more carefully. From insurer’s perspective, a balance of total amount of bonuses and maluses is very important to maintain the financial stability of the companies. With the adoption of free tariff regime in motor third-party liability insurance in Turkey in 2014, insurance companies had a chance to freely determine the bonus-malus rates. In this study, an experience rating was implemented using the insured’s individual claim experience by taking the disadvantages of using mandatory bonus-malus system’s transition rules, classes and bonus-malus scales determined by the government into consideration. Unlike the previous system where rates were determined by using only the claims of the previous year, policyholders are prevented from evading malus premium fast by taking the number of the individual claim experience of the policyholders observed through a period of time into account. In the application section of the study, data taken from an insurance company are used in order to build an optimal bonus-malus system. These data involve information about the observed claim frequencies of automobiles over a year for motor third party liability policies. It was examined whether the data in question were in compliance with the good risk/bad risk distribution that was used in observed claim frequencies of automobiles. Optimal bonus-malus systems are created and bonus-malus rates are determined by good risk/ bad risk model whose accordance with the data is shown using credibility theory, Bayesian approach and the principle of expected value premium.

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Experince rating , Good Risk , Bad Model Risk , Credibility , Bonus , Malus System , Motor Third Party Liability Insurance

Journal Of Financial Researches an‎d Studies

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