The Vehicle Make-based Pricing Approach for Motor Insurance in Sri Lanka: Identifying the Efficacy of Vehicle Make on Pricing Decision

Abstract

Insurance industry comes under financial sector facing more challenges from external environment and creating more innovative solutions for them. Motor insurance can be identified as one of the key components of the insurance business and deciding the prices for motor insurance policies is a massive challenge faced by underwriters. Therefore the present study made to evaluate efficacy of make-based pricing method for Sri Lankan insurance industry when compared to current approach of using purpose and vehicle category-based pricing approach. 70,475 motor insurance policies and 31,706 respective claims were selected as the sample and data were selected from insurance agents covering entire geographical area and from a motor engineer under the telephone conversation method. Data were analyzed using MS Office 2007 excel package and list downing points from the motor engineer. The researcher identified varied claim ratios for different vehicle makes even if they use for the same purpose. Therefore vehicle’s make is highly affected to total claim cost of a vehicle and thereby affect for insurance premium calculation/pricing decisions. Make-based pricing allowed to charge customized prices from clients by referring past claim history of particular vehicle makes.

Keywords: Claims, Motor Insurance, Pricing, Vehicle Make

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