An Evaluation of the New Japanese Bonus–Malus System with No-claim and Claimed Subclasses

Abstract

AbstractThe purpose of this research is to evaluate the new Japanese Bonus–Malus System (BMS 2012) in automobile insurance, which is an unusual system wherein both no-claim and claimed subclasses exist. To evaluate BMS 2012, we conduct a simulation analysis and compare BMS 2012 with the former Japanese BMS (BMS 2009) in terms of the present value of the total insurance premium that is closely related to the frequency of insurance claims. Based on the comparison, our main conclusion is that BMS 2012 offers more effects to lower the frequency of insurance claims than BMS 2009 does when the policyholders’ classes in BMS are high classes that evaluate as safety drivers, time discount and/or renewal rates are relatively low, and the policyholders’ risk averseness is large.