• Journal of the Korean Data and Information Science Society
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• v.18 no.4
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• pp.1093-1101
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• 2007

Bonus-Malus system in automobile insurance rewards claim-free policyholders by premium discounts and penalizes policyholders with claims by premium surcharges. The purpose of adopting bonus-malus system is to alleviate differences in risk propensity. A well-known side-effect of bonus-malus system is the tendency of policyholders to pay small claims themselves and not report them to their, in order to avoid future premium increases. This phenomenon is called hunger for bonus. In this paper, we introduces an alternative approach to the Bonus-Malus system in automobile insurance - the approach is based on a deductible theory; and then search for a proper way combining both of them. Also, we construct a new algorithm to determine the optimal strategy of the policyholder based on the proposed model.

• Journal of Environmental Policy
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• v.14 no.4
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• pp.23-44
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• 2015

The policy aimed at introducing a Bonus-Malus system to reduce GHG and raise the market share of small cars is scheduled to go into effect in South Korea in 2020. Although the policy was originally planned to be enforced from 2015, the Ministry of Trade, Industry and Energy argued that the system brings low reduction effect and relative disadvantage to domestic small cars and brought arguments in 2014. As a result, the enforcement was pushed back. Related studies are mainly focused on offering statistical estimation of the policy's effect to support the arguments, and few theoretical studies were published given that there was not enough time until 2015 back then. The author approached the issue with mathematical modeling in order to give theoretical basis for sophisticated empirical studies. If car suppliers have market power and strategically set their prices, the impact of Bouns-Malus on car prices would be lower than what was originally intended. In case only a part of the car market loses its market power, the effect of the policy would be improved. Assume that the Bonus-Malus is currently at an optimal level and the car market structure is undergoing changes, then the direction of the new optimal level would depend on the elasticity of demand of each market and substitute elasticity. For example, if the car market becomes more monopolistic while the demand for big cars is elastic, demand for small cars is inelastic and substitution elasticity is low, then the new optimal level of Bonus-Malus should be higher.