Auto insurance companies are at a crossroads. Several variables commonly used, such as gender and territory, are being questioned by regulators. Insurers are being pressured to find new variables that predict accidents more accurately and are socially acceptable. Annual mileage seems an ideal candidate. The recent development of GPS systems, on-board computers, and telematics devices, and the rapid decrease in price of the new technologies, should induce carriers to explore ways to introduce Pay-As -You-Drive insurance. We use the unique database of a major insur er in Taiwan to investigate whether annual mileage should be introduced as a rating variable in third-party liability insurance. We find that annual mileage is an extremely powerful predictor of the number of claims at-fault. Its significance, as measured by Wald's chi -square and its associated p-value, by far exceed that of all other variables, including bonus-malus. This conclusion applies independently of all other variables possibly included in rating. The inclusion of mileage as a new variable should, however, not take place at the expense of bonus-malus systems; rather the information contained in the bonus-malus premium level complements the value of annual mileage. An accurate rating system should therefore include annual mileage and bonus-malus as the two main building blocks, possibly supplemented by the use of other variables like age, territory, and engine cubic capacity. While Taiwan has specific characteristics (high traffic density, mild bonus-malus system, limited compulsory auto coverage), our results are so strong that we can confidently conjecture that they extend to all affluent countries. Auto insurance companies are at a crossroads. Several variables commonly used, such as gender and territory, are being questioned by regulators. Insurers are being pressured to find new variables that predict accidents more accurately and are socially acceptable. Annual mileage seems an ideal candidate. The recent development of GPS systems, on-board computers, and telematics devices, and the rapid decrease in price of the new technologies, should induce carriers to explore ways to introduce Pay-As-You-Drive insurance.We use the unique database of a major insurer in Taiwan to investigate whether annual mileage should be introduced as a rating variable in third-party liability insurance. We find that annual mileage is an extremely powerful predictor of the number of claims at-fault. Its significance, as measured by Wald's chi-square and its associated p-value, by far exceed that of all other variables, including bonusmalus. This conclusion applies independently of all other variables possibly included in rating. The inclusion of mileage as a new variable should, however, not take place at the expense of bonus-malus systems; rather the information contained in the bonus-malus premium level complements the value of annual mileage. An accurate rating system should therefore include annual mileage and bonus-malus as the two main building blocks...

This article examines the accident externality from driving in terms of loss probability and severity by using a unique individual‐level data set with more than 3 million observations from Taiwan. Two types of accident externality are, respectively, measured: the average number of kilometers driven per month per vehicle and the total number of speeding tickets per month. For both variables, we find significant evidence to support the existence of the accident externality. Moreover, we find that the accident externality is heterogeneous in terms of the vehicles’ characteristics.

This article proposes that vehicle maintenance records can provide useful information for predicting the probability that an owner will have an automobile accident. To test the hypothesis, we use a unique data set that is merged from an insurance company and a vehicle manufacturer in Taiwan. We find weak evidence to support our hypothesis. Among all the proxies for proper maintenance, we indicate that proper maintenance defined by the recommended kilometers is significantly negatively correlated with the loss probability in compulsory automobile liability insurance. The average loss probability decreases by 0.23 percent when the insured vehicle is properly maintained according to the recommended number of kilometers in the previous years, whereas the average loss probability for the overall sample is 0.49 percent. We further find that proper maintenance is insignificantly correlated with loss severity.

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We present evidence to support the existence of opportunistic fraud in the automobile theft insurance market in Taiwan. After encountering a typhoon hit, the insured who purchase automobile theft insurance but do not purchase typhoon/flood insurance tend to have a significantly higher probability of filing a total theft claim than other insured. The above relationship exists mainly in places affected by typhoons. Such evidence does not exist in partial theft claim. These claim patterns of automobile theft insurance provide us with strong evidence that supports the existence of opportunistic fraud in the market.