In the premium rating system presently being used, the factor of personal hazard of the driver is not taken into consideration directly. In many other countries, it is an integral factor to influence the premium rate and a prime consideration for acceptance of the risk by the insurance company. 

However, the system of Bonus/ Malus recognises this factor indirectly since Bonus is a reward which allows discounts for claim-free period, while Malus is a loading in the premium for adverse claims experience. Thus, the discount acts as an incentive to the insured to exercise care and caution while driving. Indirectly, the discount contributes to the objective of road safety.

The Bonus/ Malus is applicable to Own Damage section of the comprehensive policy. In other words, the discount or the loading is applied on the premium component of that section of the policy only. It is NOT applicable also for Road Transit Policies, Motor Trade Policies and policies which cover only Fire and Theft risks. The discount/loading follows the fortunes of the original insured and not the policy. 

For instance, Mr. Tamore is earning a no-claim Bonus in the insurance policy for his Maruti 800 since the last three years. The existing insurance policy is for the period January to December. In March, he sells the vehicle to Mr. Pappu along with the insurance policy. 

Although the amount towards the Bonus is not recovered from Mr. Pappu, he is not entitled for the Bonus when he renews the insurance policy in December. For him the entitlement of the Bonus starts afresh from the renewal of this policy. He is entitled for the Bonus only from the next renewal, the following year.

Contrarily, if Mr. Tamore immediately replaced his vehicle with a new one and continues with his existing insurance policy, he is entitled for the discount. The existing policy is modified to substitute his new vehicle and the difference between the premium of the new vehicle less the discount and that of the old vehicle is collected by the insurance company. 

The following year Mr. Tamore earns the next increased slab of discount on the premium, provided there is no claim under the policy. Since in such an event the insurance policy cannot be sold along with the vehicle, Mr. Pappu would have to buy an insurance policy as soon as he buys the vehicle for the period from March to February. He would be entitled for Bonus only after expiry of one year from February.

When an insured vehicle is sold and not replaced immediately, the discount if earned, may be granted on a subsequent insurance, provided such new insurance is effected within three years from the expiry date of the previous insurance. 

If Mr. Tamore did not replace his vehicle immediately, he can still earn the Bonus at the rate of discount provided he replaces the vehicle within three years but at the rate which he was earning at the time of the last complete year of insurance.

If a vehicle is in the name of a firm and is allotted to an employee, and subsequently is transferred in the name of the employee, the bonus earned or malus applicable is transferred to him. A letter confirming that the vehicle was prior to transfer, allotted to and used by the employee has to be submitted to the insurance company.

To continue earning the discount it is not required that the insurance is renewed with the same insurance company. In case the insurance is renewed with another company the proof of having earned the Bonus in the last insurance has to be submitted to the insurance company, for availing the discount.

If the insured is unable to produce evidence of Bonus/ Malus at the time of effecting insurance, the following procedure is to be adopted

If the insured can prove that he has owned the said vehicle for a period of 30 days or less only, no Malus (loading) is to be charged. This will be verified from the Registration Book of the vehicle. A declaration stating that he had not owned any vehicle earlier is also to be submitted

If the inspection of the RC book reveals

• that he was owning the vehicle for 12 months or less, Malus (loading) as per first slab, i.e., for Private cars and taxies - 10% and for motor cycles and commercial vehicles - 25%, would be charged

• that he was owning the vehicle for over 12 months, Malus (loading) as per second slab i.e. for Private cars and taxies - 30% and for motor cycles and commercial vehicles - 25%, would be charged
  
  

• if subsequently but before the expiry of the policy, the insured produces the evidence of insurance, suitable adjustment in premium without charging the loading is made and refunded to the insured
  
  

• if a policy is not renewed without interruption and a insurance for a subsequent year is effected within 90 days of the expiry of the policy, the Bonus (discount) is continued. However, in the case of Defence Personnel working in forward areas and/or foreign assignments, this period may be extended to 365 days after obtaining a written statement from the insure that the vehicle was not put to use during that interim period.

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