Bonus-Malus System
The bonus-malus system tiers motor insurance premiums based on the policyholder's individual claims history.
Concept
The bonus-malus system is a rating system widely used in motor liability and comprehensive insurance that places the policyholder into different premium tiers based on their individual claims history, reflected in no-claims classes.
Mechanism
For each claims-free insurance year, the policyholder moves up to a more favorable no-claims class with a lower premium (bonus), while a reported claim settled by the insurer results in a downgrade to a less favorable class with a higher premium (malus).
Relevance for Risk Selection and Behavior
The bonus-malus system creates an incentive for policyholders to drive carefully and avoid reporting minor claims, while also allowing insurers to differentiate premiums based on behavior beyond pure risk classification by vehicle type and driver profile; it is typically transferable when switching insurers via a certificate from the previous insurer.