Bonus-Malus

In insurance, the term bonus-malus denotes a system which rewards policyholders for not making claims and penalizes them for making claims. Policyholders who do not make claims are rewarded with discounts on premiums. Policyholders who make claims are penalized with markups on premiums.

The purpose of bonus-malus systems is to better spread insurance risk by charging higher premiums to policyholders who generate costs while reducing the premiums of those who do not.

Typically, bonus-malus systems use a series of tiers. The standard tier represents the standard insurance premium. Bonus tiers represent progressive discounts on the standard premium. Malus tiers represent progressive markups on the standard premium. Both discounts and markups are typically a percentage of the standard premium, though fixed amounts may also be used.

Insurance providers bump you up by one or more tier every year in which you do not file a claim. Some insurers provide additional avenues for improving your bonus-malus rating. For example, car insurance providers may bump you up to a better tier for attending defensive driving courses.

When you file a claim, you are bumped down by one tier, or possibly more, meaning you lose discounts and/or pay markups on premiums. Insurance providers may have additional allowances for lowering your bonus-malus rating. For example, car insurance providers may lower your bonus-malus rating when you commit a serious traffic offense, but this practice is not common among Swiss insurance providers.

In Switzerland, bonus-malus is most widely used in car insurance. It is sometimes used for other kinds of insurance, such as household insurance and paid sick leave insurance. Some Swiss health insurance providers also use bonus-malus systems (see the definition of bonus health insurance for more information).

Swiss liability insurance providers generally abstain from reducing your bonus-malus for strict liability claims. Swiss car insurance providers which use bonus-malus generally offer a claims forgiveness rider or include this in their offers by default.

More on this topic:
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Editor Daniel Dreier
Daniel Dreier is editor and personal finance expert at moneyland.ch.