It is high time a bonus-malus system be introduced in motor insurance
The Bulgarian Actuarial Society (BAS) was accredited as a full member of the International Actuarial Association (IAA). The approval was ruled in the end of October at the IAA meeting in Dublin, Ireland. The chair of BAS, Mr Nikolay Todorov, speaks about international recognition and the difficulties the Bulgarian actuaries are facing.
Mr Todorov, how important is the membership of the Bulgarian Actuarial Society in the International Actuarial Association?
BAS membership in IAA means compliance with IAA's
educational requirements and the Ethical Code of Professional Conduct. The full membership as well means that we will participate in the debates over all documents, directives, recommendations
issued by IAA including Solvency II. IAA professional standards are automatically applicable to the actuaries in Bulgaria.
In Bulgaria the actuaries are regarded as mathematicians whose assessment is not always taken into consideration. What should an actuary do so their word carries weight in a
company?
This is quite a complex and delicate question. The calculations and recommendations the actuary prepares for the managers is one of the sides. The other is what the market
offers. The market sometimes develops following non-marketing rules. The price rates often reflect the market situation and if the actuary is to propose a significantly different price rate, their
assessment should be based on strictly professional rules. The managers, on their turn, have to make the decision is it prudent to take additional risk by introducing lower prices. Often the
companies settle on "compressed" price rates which makes it uneasy for the actuaries.
Can an actuarial assessment be the reason for a bankruptcy?
No. Actuaries follow professional rules and make conservative and cautious recommendations. What is more, the Law itself sets rigid regulations on the companies' stability mechanisms.
Do actuaries have special methods of meeting the market requirements and making the insurance products attractive?
The products are attractive when providing good coverage for the respective risk. Many factors influence the price of the insurance products: the level of risk, administrative fees paid to the
company, the amount of the commissions etc. The methods of the actuaries are conservative as the coverage should be adequate and enough.
Which market needs actuarial service most?
The non-life insurance market is abundant of products and the best professional arena for an actuary. Motor insurance market is
exclusively dynamic. Life insurance market now offer the very interesting unit linked products which allow actuaries to develop insurance products designed for the investment markets.
Health insurance market is the market in the beginning of its development. It carries certain risks, too. Health insurance companies, unlike the pension insurance companies, cannot take the
advantage of an accumulation period since an accident can occur any moment meaning that the company has always to be solvent and reinsurance seems to be of great significance. Serious problem is
the lack of actual health status statistics.
You said that motor insurance is an issue of interest. According to you, what is the minimum price insurers must not drop below?
Each company determines the prices of its
products that is to correspond to the risk. The insurers have to take into consideration the risk level, the number of accidents and the damage amount of the recent years.
The prices of services and compensation payments amount are on the increase in Bulgaria and it is logical for the prices of motor insurance to inevitably increase, too. If a company, for instance,
insures taxis the risk is way higher in comparison with an ordinary car. And that is why motor insurance for taxis is more expensive. Georgaphical location, the driver's prudence and the type of
work the driver is doing are other factors some consider reasonable. It is high time a bonus-malus system be introduced in motor insurance, i.e. the conscientious drivers get bonuses while the
risky drivers pay more. Most countries have developed a system allowing the insurance company to know how "risky" a driver is by giving access to Traffic Police records. And the insurer is able to
change the price for every client. Bulgaria needs to introduce the same practice.
Where is the place of Bulgarian actuaries in European dimension?
Many Bulgarians were in the actuarial business in the 1940's and '50's. Today Bulgarian actuaries work for
prestigious universities abroad, City University in London, for instance. They have made interesting publications on risk and we can say that Bulgarian actuarial science has contributed a lot to
the international actuarial science.
