An analysis of the risk factors determining motor insurance premium in a small island state : the case of Malta

Abstract

Purpose: There is scope to identify the risks presented by vehicles that Maltese insurance companies insure and which they use in the determination of the premium to be charged for motor insurance cover. This, by determining the most significant risk factors and the extent of their impact keeping an open mind to understand whether there are other risk factors, which are not currently being identified in the premium determination process. Methodology: The authors carried out this research by conducting 20 semi-structured interviews with experts in the field of motor insurance. Interviews were terminated when saturation point was achieved, and no further value was gained from additional interviews. Findings: The study revealed that most insurers are still using the traditional rating factors, even though this might not necessarily reflect the risk being insured. Moreover, it was found that although insurers are aware that certain rating factors, such as penalty points and vehicle grouping, can help in improving the risk identification, these are not yet being considered in the current premium calculation. Also, it was found that, Maltese insurers ought to analyse the data from the penalty points system and use telematics and vehicle groupings in order to obtain a better understanding of the risk involved. Practical Implications: The study reflects the fact that Maltese insurers are falling short in the risk identification process, and consequently may not be factoring in all the risks leading to the actual premium composition.