Abstract

The aim of this paper is to represent the Bonus-Malus System (BMS) of Iran, which is a mandatory scheme based on Insurance act num ber 56. We examine the current Iranian BMS, using various criteria such as elasticity and time of convergence to steady state with respect to the claim frequency as well as financial balance. We also find the closed form of stationary distribution of the Iranian BMS that plays a key role in study of BMSs. Moreover, we compare the results with the German and Japan BMS. Finally we give some hints that can be used to improve the performance of the current Iranian BMS.

Highlights

  • The consequences of car accidents are often very severe, insurance for car owners is compulsory in most countries

  • The elasticity of a Bonus-Malus System (BMS) measures the response of the system to a change in the claim frequency

  • Evaluation of the convergence rate of BMSs toward their steady-state condition is of great importance, because many of the tools defined here assume that stationarity has been reached (Lemaire and Zi, 1994)

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Summary

Introduction

The consequences of car accidents are often very severe, insurance for car owners is compulsory in most countries. Number of road deaths: Figure 1 shows the mortality rates from road traffic injuries per 1,000,000 population, for several countries in 20081. This figure indicates that the highest rate is for Iran. An Iranian official in an interview published online attributed about percent of road accidents to reckless driving, 15% to car failures and the remaining 15% due to the poor state of some of the roads. This official cited illegal overtaking and high speed driving as prime causes of accidents on Persian roadways

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