Quest for Optimal Bonus-Malus in Automobile Insurance in Developing Economies: An Actuarial Perspective

This paper evaluates the bonus-malus system in practice in the Nigerian motor insurance industry. It would appear that the regulation is a bit fluid so that what actually looks like a bonus-malus system is more like a rule of thumb as operators do not honor the industry agreed tariff. This paper constructs an alternative bonus-malus scale that has reasonable penalties and that is yet commercially feasible. The model can easily be replicated for other developing economies.