Bonus-Malus System In Automobile Insurance And Applications In China

After more than 100 years development, automobile insurance which came into being at the end of 19th century has been the most important insurance category in many countries'property insurance. Its main method of ratemaking, which is call bonus-malus system, BMS, is already accepted by majority countries and has applied in different designs. Many foreign insurance companies entered into China's insurance market since China entered into WTO and opened the insurance market. With the competition becoming more ruthlessly, how to adopt a rational competitive price has become the main problem that all insurance companies must face.First of all, this paper introduces a general method of designing a BMS of which pricing consists of a prior premium and a posteriori premium. The prior premium includes risk rating variable, net premium, security loading and cost loading, and the posteriori premium is designing the optimal BMS.The optimal BMS also has some flaws. As an improvement, we give a BMS which bases both on the number of claim and the responsibility levels of claim in chapter 4. Moreover, the optimal BMS yields an unfair phenomenon that those having the same claim frequency but different claiming time policyholders will have different accumulated premium after several years. Therefore this article proposes one kind fair BMS, which has the same premium to accumulate.From the economic point of view, we analyze the behavior of the consumers. We can deduce that the automobile insurance would be a Giffen good in most situations.Finally, this article enumerates three insurance companies'NCD systems in our country. In view of its existence problems, we propose some suggestions expecting some help to the practice.