Optimization of BMS in Motor Vehicle Insurance

Bonus-malus system (BMS) in motor vehicle insurance is an incentive system to encourage people to drive more carefully. At present, the transfer rule of BMS is related to claim numbers only and it is unfair for the insureds with small claim amounts. In order to establish a scientific Bonus-malus system, we provide hazard identification method to optimize it. By analyzing risk factors of motor vehicle insurance, claim amount and responsability in accidents are considered in the transfer rule of BMS. The results show that policy-holders with same claim numbers but with more claim amounts or with higher responsaility in accidents should pay more amounts of insurance premium in optimized BMS. It can truly reflect the level of risks and it is more fair for the insureds.