High Deductibles instead of Bonus-Malus: Can it Work?

Jean Lemaire and Hongmin Zi

ASTIN Bulletin, 1994, vol. 24, issue 1, 75-86

Abstract: Holtan (1994) suggests to replace traditional bonus-malus systems by a high deductible financed by a short-term loan. Practical consequences of this proposal are investigated here. Simulation is used to evaluate the efficiency of the Taiwanese Bonus-malus system and the variability of premiums of an average policyholder. Holtan's high deductible system is analysed under a compound Poisson assumption, with truncated exponential claims. It is shown that the introduction of a high deductible would increase the variability of payments and the efficiency of the rating system for most policyholders.

Date: 1994
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