Motor insurance pricing systems in Malta : an evaluation of the need for change

Abstract

Insurers have recognised the fact that the present rating system of motor insurance in Malta reflects only partially the risk involved. The purpose of this study is to evaluate the existing pricing systems of motor insurance and to provide suggestions on how these can be improved. The objectives of the study were achieved through the use of a questionnaire which was submitted to local insurance companies and also by means of an analysis of claims data pertaining to an insurance agency. The study reveals that at present most insurers are still using traditional rating factors (relating to the engine strength and the value of the car) which do not necessarily reflect the risk being insured. The study identified that certain rating factors are not being taken into consideration despite differences in the risk involved. The study points out the need for introducing new rating factors which reflect the risk, without complicating the premium structure. It suggests insurers to consider amongst others the introduction of vehicle group rating and distance based rating. The study recommends that the rating factors used should be related to the risk being insured; hence discouraging the use of arbitrary discounts.