Is the Design of Bonus-Malus Systems Influenced by Insurance Maturity or National Culture? — Evidence from Asia

Sojung C Park (), Jean Lemaire () and Choong Tze Chua ()
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Sojung C Park: Department of Finance, Mihaylo College of Business and Economics, California State University, P.O. Box 6848 Fullerton, CA 92834-6848, U.S.A.
Jean Lemaire: Department of Insurance & Risk Management, Wharton School, University of Pennsylvania, 3620 Locust Walk, 3404 Steinberg Hall-Dietrich Hall, Philadelphia, PA 19104-6218, U.S.A.
Choong Tze Chua: Lee Kong Chian School of Business, Singapore Management University, 50 Stamford Road, #04-045, 178899 Singapore.

The Geneva Papers on Risk and Insurance - Issues and Practice, 2010, vol. 35, issue S1, S7-S27

Abstract: Most Asian countries have adopted bonus-malus systems (BMS) in automobile insurance. We evaluate the toughness towards consumers of 16 Asian BMS and its correlation with cultural and economic variables. We use principal components analysis to define a Maturity Index of insurance markets and find supporting evidence for a conjecture that, as markets become more mature and policy-holders more sophisticated, countries adopt tougher BMS. In addition, we find, using regression analysis, that using a Common Law legal system is a crucial factor in BMS design. Cultural variables, such as uncertainty avoidance, also influence BMS.

Date: 2010
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