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Bonus–malus
Bonus–malus
Bonus–malus
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The term bonus–malus (Latin for 'good-bad') is used for a number of business arrangements which alternately reward (bonus) or penalize (malus). It is used, for example, in the call center and insurance industries.

Call centers

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In call centers, a bonus–malus arrangement is a section in the contract between the company buying the call center services (buyer) and the company providing the call center services (call center) allowing for a payment to be made from one company to the other. As part of the contract, both companies agree on a set of Key Performance Indicators (KPIs). These are measurements for how the call center is performing. If the call center is performing poorly, then there would be a malus payment (payment from the call center company to the buyer). If the call center is doing well, then there is a bonus payment from the buyer to the call center company. Bonus–malus payments are in addition to the normal cost of call center services.

Insurance

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In insurance, a bonus–malus system (BMS) is a system that adjusts the premium paid by a customer according to their individual claim history.

Bonus usually is a discount in the premium which is given on the renewal of the policy if no claim is made in the previous year. Malus is an increase in the premium if there is a claim in the previous year. Bonus–malus systems are very common in vehicle insurance. This system is also called a no-claim discount (NCD) or no-claims bonus in Britain and Australia.

The fundamental principle of BMS is that the higher the claim frequency of a policyholder, the higher the insurance costs that on average are charged to the policyholder. This principle is also valid in an insurance arrangement consisting of a high maximum deductible which is common to all policyholders.

Automobile insurance

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Most insurers around the world have introduced some form of merit-rating in automobile third party liability insurance. Such systems penalize at-fault accidents by premium surcharges and reward claim-free years by discounts, commonly known as a "no-claims discount".[1]

The most usual BMS divides drivers by classes, where each class has its own discount or surcharge that is applied to the basic premium. A claim-free year implies in a decline of one or more degrees on the Bonus/Malus class table on the anniversary of the contract. A claim entails an increase of a given number of degrees on the Bonus/Malus scale on the anniversary of the contract. Generally, one degree corresponds to a 5% discount or surcharge. The starting class may depend on the driver's age, sex, place of residence, the car's horsepower. Each country has different legislation, which rules how many degrees an insurer may increase or decrease, the maximum bonus or malus allowed and which statistics insurers can use to evaluate the starting class of a driver.

Academic literature concerning bonus malus systems typically presupposes that the quantity of claims within a given period follows a Poisson distribution.[2] In this context, the parameter λ of the Poisson distribution, signifying claim frequency, is assumed to be accurately known and serves as a risk metric for the policy. Nevertheless, adopting a more pragmatic standpoint, complete awareness of this parameter is often unattainable, necessitating some form of estimation with the inherent uncertainties of the estimation process.[3][4] Consequently, practical approaches involve fitting it through modal intervals[5] or employing fuzzy numbers,[6] for instance.

Bonus hunger

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There is a basic question under Bonus–malus system based on insurance customer's point of view, that is, “Should an insurance customer carry an incurred loss himself, or should he make a claim to the insurance company?”. Hence, an insurance customer prefers to choose self-financing an occurred loss by carrying a small loss himself in order to avoid an increased future premium, instead of financing the loss by compensation from the insurance company. This strategy is called bonus hunger of the insurance customer. In this strategy, the insurance customer prefers the most profitable financial alternative, after a loss occurrence. A well-designed bonus–malus system must take bonus hunger into consideration.

Executive compensation

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See also: Executive pay

In executive compensation, particularly at banks, bonus–malus refers to schemes where annual bonuses are held in escrow (do not immediately vest), and can be reduced retroactively (clawed back) in case of losses in future years.

The intention is to align incentives better and encouraging a long-term view in directors, by discouraging the taking of risks which may yield short-term profits (and hence bonuses in early years) but with long-term losses (which, under a traditional bonus system, would not be penalized).

Such a system was proposed by Raghuram Rajan in January 2008.[7]

Author Jim Collins proposed that executives be expected to buy stock with their own money (as was done at IBM in the 1990s) taking on both up-side rewards and down-side risk.[8]

In November 2008, UBS AG announced a change to its executive compensation scheme implementing such a system, which it dubbed a "bonus–malus" system.[9]

French insurance price calculation

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In France, the prices of insurance are calculated as a function of the car type, subscribed insurance options, and also bonus/malus value (%), stating how many years the driver used the car without any accident or another event relevant to the insurance. It means that the bonus/malus is assigned to the insured person and also to family members (e.g. spouse), who are allowed to drive the car. The bonus can be transferred between insurance companies.

Bonus reduction Coefficient (CRM)
Year of insurance Insurance discount coefficient
(Bonus) 		Insurance discount
("bonus") 		Bonus for
professionals 		Insurance discount
for professionals
0 1.00 0% 1.00 0%
1 0.95 5% 0.93 7%
2 0.90 10% 0.86 14%
3 0.85 15% 0.79 21%
4 0.80 20% 0.73 27%
5 0.76 24% 0.67 33%
6 0.72 28% 0.62 38%
7 0.68 32% 0.57 43%
8 0.64 36% 0.53 47%
9 0.60 40% 0.50 50%
10 0.57 43%
11 0.54 46%
12 0.51 49%
13 0.50 50%

French taxation

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In France, cars are taxed (malus) or credited (bonus) if their carbon emissions are above or below certain targets. The limits (can) change every year.

French registration document (carte grise)

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Main article: Vehicle insurance in France

The environmental tax is also applied as a malus, to all vehicles newly registered after 1 January 2008, affecting all passenger cars emitting more than 109 g of CO2 per kilometer emissions (as of 2020). This tax is paid when the registration document (called « carte grise » in French language) is done.[10]

Currently, the certificate holder must pay a penalty to the registration, according to the following rates (2020):[11]

  • < 110 g/km : no malus
  • 110 g/km : malus of 50 euros
  • 111 g/km : malus of 75 euros
  • 112 g/km : malus of 100 euros
  • 113 g/km : malus of 125 euros
  • 114 g/km : malus of 150 euros
  • 115 g/km : malus of 170 euros
  • 116 g/km : malus of 190 euros
  • 117 g/km : malus of 210 euros
  • 118 g/km : malus of 230 euros
  • 119 g/km : malus of 240 euros
  • 120 g/km : malus of 260 euros
  • ...
  • 140 g/km : malus of 1 901 euros
  • 150 g/km : malus of 3 784 euros
  • 160 g/km : malus of 6 724 euros
  • 170 g/km : malus of 10 980 euros
  • 180 g/km : malus of 16 810 euros
  • > 184 g/km : malus of 20 000 euros

Further taxes may apply according to vehicle classification.

References

[edit]
Revisions and contributorsEdit on WikipediaRead on Wikipedia

Bonus–malus

View on Grokipedia
from Grokipedia
The bonus–malus écologique is a French government for new passenger cars and light commercial vehicles that provides cash rebates (bonuses) to buyers of models emitting low levels of CO₂ while levying surcharges () on high emitters at the point of first registration, with the dual aim of internalizing the environmental costs of transport emissions and shifting consumer demand toward lower-carbon technologies such as electric and hybrid vehicles. Enacted in January 2008 as part of broader efforts to meet targets for fleet-average CO₂ reductions, the system functions as a revenue-neutral feebate mechanism, wherein penalties collected from polluting directly finance for cleaner ones, thereby avoiding net fiscal burdens on the state budget. Over more than a decade, iterative adjustments to emission thresholds and incentive scales have correlated with declines in the average CO₂ output of newly registered , from approximately 150 g/km in 2008 to below 120 g/km by the mid-2010s, though subsequent policy expansions have increasingly prioritized zero-emission models amid rising adoption. In its 2025 configuration, effective from March 1, the applies starting at 113 g/km of CO₂ (under WLTP testing), with graduated penalties reaching a of €70,000 for vehicles exceeding 225 g/km or heavy models, complemented by bonuses up to €7,000 for battery electric vehicles and further supplements—such as an additional €1,000 for those assembled and battery-produced within the —to bolster domestic and import substitution. These updates reflect ongoing calibrations to align with France's net-zero ambitions by 2050, though the policy's emphasis on tailpipe emissions has drawn for underweighting upstream impacts of battery supply chains.

Conceptual Framework

Definition and Core Mechanism

The bonus-malus system is an experience rating mechanism employed primarily in automobile insurance to adjust policyholders' premiums retrospectively based on their claims history, providing discounts (bonuses) for periods without claims and surcharges (maluses) for claims filed. This approach serves as a form of a posteriori risk classification, differentiating premiums according to observed driver behavior rather than solely prospective risk factors like age or vehicle type. By rewarding claim-free years and penalizing incidents, the system aims to incentivize safer driving while ensuring that higher-risk policyholders contribute more equitably to the insurer's loss pool. At its core, the mechanism operates through a class-based or structure where policyholders begin at a neutral reference level—often denoted as class 0 or a coefficient of 1.00—and transition between levels annually depending on claims activity. In a typical setup, such as those used in European markets, each claim-free year shifts the policyholder to a bonus class, reducing the premium by a fixed percentage (e.g., 5-10% per year, accumulating up to 50-70% discounts after several years). Conversely, filing a claim—particularly an at-fault one—imposes a by elevating the class, increasing the premium by 20-30% or more, which may reset accumulated bonuses partially or fully. Premiums are calculated as the multiplied by a relative factor tied to the current class, with transitions governed by predefined matrices that balance incentives against insurer ; for instance, stationary distributions ensure the system's average premium aligns with overall portfolio risks. This dynamic adjustment reflects empirical claim frequencies, promoting behavioral adaptation without relying on subjective assessments.

Economic Rationale and Incentive Structures

The bonus-malus system functions as an experience-rating tool in insurance markets, adjusting premiums based on a policyholder's claim history to reflect individualized more accurately than uniform pooling. Its core economic rationale lies in countering , where full insurance coverage might otherwise induce riskier behavior by shielding individuals from the financial consequences of their actions; by escalating premiums after claims (malus), the system compels drivers to internalize accident costs, thereby promoting caution and reducing expected losses for insurers. This mechanism aligns with causal principles of pricing, as past claims serve as observable proxies for future hazard rates, enabling premiums to approximate true actuarial costs rather than subsidizing high-risk drivers through cross-pooling. Incentive structures within bonus-malus systems create a graduated scale of rewards and penalties, typically modeled via transitions where claim-free years yield premium reductions (bonus) accumulating up to significant discounts—often 50-60% below base rates—while claims trigger surcharges proportional to severity or frequency, sometimes doubling premiums. This asymmetry persistence in safe habits, as the marginal benefit of avoiding a single claim outweighs the averaged cost, fostering long-term behavioral adaptation; for instance, drivers in lower bonus levels face steeper relative penalties, amplifying deterrence for novices or recidivists. Actuarial designs optimize these levels to ensure relative stability, where stationary distributions match heterogeneous risk classes, thus minimizing insurer by segregating low-claim policyholders who might otherwise exit for cheaper alternatives. Empirically, such structures demonstrably curb claim volumes by linking personal to financial outcomes, with studies showing reduced frequencies under stricter regimes, though they may induce under-reporting of minor incidents as a secondary response. By eschewing flat premiums that ignore individual agency, bonus-malus enhances market efficiency, equitably distributing burdens according to demonstrated while sustaining insurer amid volatile loss distributions. This contrasts with pure community rating, which overlooks incentive-compatible and risks amplifying hazards through unpriced externalities.

Historical Development

Origins in European Insurance Markets

The bonus-malus system, a merit-rating mechanism adjusting automobile insurance premiums based on individual claims experience, originated in early 20th-century European markets as a means to incentivize claim-free and allocate costs more equitably among policyholders. British insurers pioneered simple no-claims discount schemes in the , offering reductions such as 20% for multi-car policies or claim-free renewals, marking the initial formal recognition of driving history in premium setting. These early systems laid the groundwork for experience rating but lacked the structured class transitions characteristic of later continental variants. In , bonus-malus systems—featuring discrete premium classes with bonuses for no-claims years and maluses for at-fault incidents—emerged after , driven by rising motorization and the need for risk-differentiated pricing amid limited actuarial data on individual drivers. led this development, with insurers voluntarily implementing bonus-malus schemes in the late 1950s to reward low-risk policyholders and penalize frequent claimants, reflecting post-war efforts to stabilize growing portfolios. By the , similar systems spread to neighboring markets like and , where they evolved into mandatory frameworks to curb and align premiums with empirical claims frequency. French formalized the bonus-malus on June 11, 1976, mandating a coefficient de réduction-majoration (CRM) scale that reduced premiums by 5% annually for claim-free years (capping at 50% bonus after 13 years) while imposing up to 250% maluses for multiple claims, thereby institutionalizing the system across all auto insurers. This regulatory push influenced broader European adoption, with countries like enacting official scales as early as 1971 (18 classes) and others following suit to harmonize amid expanding compulsory third-party liability coverage. These origins underscored the system's dual role in behavioral incentives and actuarial fairness, though early implementations varied in relativity levels and transition rules based on local claims data.

Evolution and Global Adoption

The bonus-malus system, initially developed in during the mid-20th century, underwent refinements in the 1960s through actuarial models incorporating Markov chains for claims transitions, as pioneered by researchers like Bichsel (1964), Bühlmann (1964), and Delaporte (1965). These theoretical advancements, discussed at the first ASTIN Colloquium in 1959, enabled multi-class scales that rewarded claim-free years with premium discounts (bonus) and penalized claims with surcharges (malus), replacing simpler no-claim discounts prevalent in Anglo-Saxon markets. By the 1970s, regulatory adoption accelerated in ; Belgium introduced an official 18-class in 1971 to address rising claims frequency, marking one of the earliest government-mandated implementations. Subsequent evolutions included tougher penalties in response to crises, such as Switzerland's 1990 with steeper levels and Belgium's 1992 overhaul expanding to 23 classes for finer risk differentiation. These changes emphasized long-term claims memory and stationary premium distributions, with analyses showing European systems generally imposing higher relativities (up to 200% surcharges) compared to later global variants. Global adoption expanded beyond Europe in the 1980s and 1990s, driven by insurers seeking merit-rating tools amid liberalization; updated its system in 1993 to incorporate severity-based transitions, while countries like mandated a national BMS in 1992 for third-party liability coverage. By 1994, 22 countries across regions—including East Asian markets (e.g., , Korea), (e.g., with a 7-class scale), and (e.g., )—had implemented BMS or equivalents, often milder in non-European contexts to balance consumer affordability with risk incentives. Asian adoption surged post-1990s deregulation, with 16 countries analyzed by 2010 featuring systems influenced by local maturity levels, though generally less punitive than Northern European models. Further evolution in the integrated computational advances for weighting and a priori factors like driver age, while portability rules under directives (e.g., 2021 updates) facilitated cross-border claims history transfer, enhancing harmonization. Today, BMS variants are standard in over 30 jurisdictions worldwide, primarily for automobile , with ongoing adaptations in emerging markets to counter through empirical premium relativities derived from Poisson or negative binomial models.

Applications in Insurance

Automobile Insurance Systems

The bonus-malus system in automobile insurance adjusts policyholders' premiums annually based on their claims , providing discounts (bonuses) for claim-free periods and surcharges () for filed claims to reflect individual risk levels and incentivize safer driving. This experience-rating mechanism typically operates through a classification scale with multiple levels, where policyholders transition between classes depending on whether claims occur; for instance, no claims may shift a driver to a lower-risk class yielding premium reductions of 5-10% per year, while one or more claims can elevate them to higher-risk classes imposing increases up to 50% or more. Insurers design these systems to achieve financial equilibrium, ensuring total premiums collected match expected claims costs across the portfolio, often using models to set relative premiums per class based on estimated claim probabilities. In , the system—mandatory since its introduction on June 11, 1976, for third-party liability coverage—applies to all land motor vehicles except mopeds and certain equipment, with premiums modulated by a starting at 1.00 for new drivers. Claim-free years reduce the by 0.05 annually, capping at 0.50 after 13 years (a 50% discount), while a responsible claim (at-fault ) increases it stepwise: by 0.25 for the first, 0.50 for the second, and up to 3.50 maximum for repeated incidents, potentially tripling premiums. Partial fault claims result in lesser penalties, and young drivers under 25 may face initial surcharges regardless of history. Similar stepwise scales exist elsewhere in ; Italy employs "merit classes" for tariff adjustments, while Central and Eastern European countries like and use 20-30 classes with bonuses up to 65% and exceeding 100% for high-risk profiles. Variations across implementations reflect local regulatory and market conditions, with some systems incorporating claim severity—for example, weighting large losses more heavily—or capping maximum to prevent uninsurability, as seen in Luxembourg's 25-level scale from -3 (maximum bonus) to 22 (maximum penalty). In , countries like and apply analogous systems in compulsory auto liability, often with 10-20 classes emphasizing frequency over severity, though empirical designs prioritize by limiting premium hikes compared to European norms. These frameworks generally exclude non-fault claims or minor incidents to avoid penalizing victims, promoting equity by isolating driver-controllable risks from external factors.

Claiming Strategies and Behavioral Responses

Policyholders in bonus-malus automobile systems often adopt strategic claiming behaviors by evaluating the net cost of filing a claim against the potential premium penalty. Specifically, drivers compare the out-of-pocket repair expenses (net of any ) to the anticipated malus-induced premium increase, which can persist for multiple years depending on the system's relativity levels. Theoretical models demonstrate that rational agents withhold claims for minor damages below a threshold where the of future premium hikes exceeds the immediate repair cost, a phenomenon termed "bonus hunger." This under-reporting is amplified in systems with steep malus penalties; for instance, simulations in continuous-time frameworks show insureds optimally delay or forgo claims even for damages approaching the deductible, prioritizing long-term bonus accumulation over short-term reimbursement. Empirical analyses confirm such responses, with studies observing a disproportionate drop in small-claim filings post-implementation of experience-rated premiums, as policyholders self-insure minor incidents to maintain lower relativities. In Quebec's reformed bonus-malus scheme introduced in the early 2000s, claim frequencies declined by approximately 10-15% alongside reduced accident rates, attributing part of this to strategic non-claiming rather than solely safer driving. Behavioral adaptations extend to driving habits, where the prospect of losing accumulated bonuses incentivizes caution, mitigating moral hazard by aligning individual risk exposure with premium adjustments. However, evidence from French automobile markets indicates limited overall moral hazard amplification, as bonus protections for first claims in some systems temper excessive risk-taking while still curbing frivolous claims. Critics note potential inequities, as low-income drivers may forgo legitimate small claims due to liquidity constraints, exacerbating under-insurance for minor losses without altering aggregate claim volumes significantly. Longitudinal data from European insurers reveal that while total reported claims decrease, unreported minor accidents contribute to unrepaired defects, indirectly raising future collision risks.

Extended Applications Beyond Insurance

Executive Compensation and Clawback Mechanisms

In executive compensation, the bonus-malus system manifests through malus and clawback provisions that retrospectively adjust variable pay—such as annual bonuses or long-term incentives—based on later-emerging evidence of performance shortfalls, misconduct, or financial inaccuracies, analogous to how insurance premiums are reduced for claim-free periods (bonus) or increased following claims (malus). These mechanisms address moral hazard by extending accountability beyond initial performance metrics, which often rely on short-term financial results susceptible to manipulation or reversal. Malus provisions typically enable boards to cancel or reduce unvested deferred compensation before payout, whereas clawbacks mandate repayment of already-distributed amounts, with triggers including accounting restatements, ethical breaches, or failure to meet sustained performance thresholds. Regulatory mandates have driven widespread adoption, particularly in financial institutions prone to systemic risks. In the United States, the Sarbanes-Oxley Act of 2002 first required CEOs and CFOs to forfeit bonuses and incentives upon material financial restatements due to misconduct. This evolved under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which directed the SEC to implement broader clawback rules; finalized on October 26, 2022, these apply a "no-fault" recovery policy to incentive-based compensation erroneously awarded to current and former Section 16 officers based on misstated financials, covering a three-year lookback period from the restatement date and excluding insurance coverage offsets. Effective December 2023, the rules impacted over 90% of public companies by mid-2024, with median clawback amounts recovered totaling $2.3 million in cases like Wells Fargo's 2017 scandal, where executives repaid $75 million collectively. In the , the Capital Requirements Directive IV (2013) mandates for credit institutions that at least 40-60% of variable remuneration be deferred over three to five years, subject to malus or for risks materializing up to seven years later, reflecting the bonus-malus origins in actuarial practices to curb procyclical behavior. Empirical evidence indicates these provisions enhance alignment between executives and long-term , though implementation varies. A 2015 Mercer survey of firms found 47% strengthening bonus-malus and triggers amid post-crisis reforms, often linking to non-financial metrics like and conduct. Studies show firms with robust clawbacks exhibit 5-10% lower abnormal accruals, suggesting reduced earnings manipulation, but critics note enforcement challenges, as boards rarely invoke them absent scandals—only 8% of firms triggered clawbacks from 2010-2020 despite eligible cases. In bonus-malus styled plans, such as deferred incentive accounts proposed post-2008, executives receive provisional bonuses held in , adjustable downward for subsequent losses, which simulations demonstrate can cut excessive risk-taking by 20-30% compared to upfront payouts. Adoption remains higher in (over 80% of banks) than the (around 60% voluntary pre-SEC rule), driven by stakeholder governance models prioritizing sustained outcomes over immediate gains.

Performance Contracts in Services and Outsourcing

In outsourcing agreements, bonus-malus systems adapt the insurance-derived model to service level agreements (SLAs), linking supplier compensation to measurable key performance indicators (KPIs) such as response times, error rates, and uptime. Suppliers receive bonuses for surpassing predefined targets, incentivizing proactive improvements, while malus clauses impose penalties—often financial deductions or withheld payments—for failing to meet thresholds, thereby enforcing . This framework, embedded in contracts for IT, , and services, aims to align vendor interests with client outcomes by treating performance deviations as adjustable premiums rather than fixed costs. Implementation typically involves tiered KPIs with clear triggers: for instance, in warehouse , bonuses may reward accuracy exceeding 99% or on-time delivery rates above 98%, while deductions apply for shortfalls, with proceeds sometimes funding joint improvement initiatives. Contracts often span multiple years to allow performance stabilization, incorporating gain-sharing where excess bonuses are reinvested in process enhancements. on outcome-oriented contracts in service indicates that such systems foster supplier , as vendors adjust behaviors to avoid penalties and capture upside rewards, though framing—presenting incentives as gains versus losses—can influence effort allocation and relationship dynamics. Empirical applications demonstrate effectiveness in sectors like solar asset operations and learning services, where bonus-malus clauses mitigate risks of misaligned goals by tying payments to verifiable metrics, such as equipment uptime or skill development targets. In one model, penalties for SLA breaches are offset by bonuses for collaborative problem-solving, reducing disputes and enhancing long-term efficiency. However, success hinges on precise KPI definition to prevent gaming, with studies emphasizing the need for balanced incentives to avoid demotivation from overly punitive structures.
AspectBonus MechanismMalus Mechanism
TriggerExceeding KPI thresholds (e.g., >98% delivery accuracy)Falling below thresholds (e.g., <95% uptime)
ImpactAdditional payments or shared gains, often 5-15% of valueDeductions from fees, service credits, or escalation clauses
PurposeEncourage and over-deliveryDeter underperformance and enforce minimum standards
Example SectorIT outsourcing for faster resolution times for maintenance delays
Overall, these systems transform static deals into dynamic performance contracts, with evidence from legal and operational analyses showing improved supplier engagement when incentives are transparently tied to client value creation.

French-Specific Implementations

Integration with Vehicle Pricing and Taxation

In France, the ecological bonus-malus scheme applies financial adjustments directly to the purchase price of new passenger vehicles and light commercial vehicles at the time of first registration, effectively embedding environmental performance into upfront acquisition costs. Introduced in as part of broader fiscal reforms to promote lower-emission vehicles, the system levies a —a penalty —on vehicles exceeding specified CO₂ emission thresholds, while providing a bonus for those below them. This mechanism is administered through the vehicle registration process (carte grise), where the malus amount is calculated and collected by the state, increasing the total cost borne by the buyer by up to €70,000 for the most polluting models as of , 2025. The integrates with by being added to the or financed separately, often resulting in dealers quoting net prices inclusive of the penalty to reflect real market costs; for instance, a emitting 193 g CO₂/km or more incurs the maximum €70,000 charge, scaled progressively from €50 at 113 g CO₂/km. Complementing this, a weight-based malus applies from , starting at €10 per over 1,600 kg of unladen , escalating to €30 per beyond 2,400 kg, with the combined penalties capped at €70,000. These taxes are revenue-generating for the state but designed as a feebate—self-financing through malus receipts funding bonuses—thus altering relative without net fiscal burden. Taxation linkage extends to imported and used vehicles, with the applied retroactively from 2026 for second-hand imports based on original CO₂ data, ensuring consistent penalization across the market and preventing circumvention via foreign purchases. Bonuses, meanwhile, reduce effective prices for eligible low-emission vehicles—such as up to €4,000 for battery electric models in 2025, income-tested and emission-linked—directly subsidizing greener options at point-of-sale. This structure incentivizes manufacturers to price vehicles competitively within emission bands, as higher-malus models face reduced demand, while integrating with broader frameworks like VAT and regional registration fees.
CO₂ Emissions Threshold (g/km)Malus Amount (€) as of 2025
113–11750–200
118–130Progressive to 1,000
193+70,000 (maximum)
The table above illustrates select tiers of the CO₂ scale, applied linearly or in brackets to modulate based on certified emission values from type-approval tests.

CO2 Emissions and Environmental Variants

France implemented an environmental variant of the bonus-malus system in January 2008 as a feebate mechanism targeting CO2 emissions from new passenger cars and light commercial vehicles at the point of first registration. This rebates (bonus) low-emission vehicles while imposing penalties () on high-emission ones to shift market demand toward cleaner technologies and reduce fleet-average emissions. The scheme operates independently of the traditional insurance-based bonus-malus but shares the incentive structure to promote behavioral change in vehicle acquisition. CO2 emissions are assessed using standardized laboratory tests, originally the New European Driving Cycle (NEDC) until 2018, after which the more realistic Worldwide Harmonized Light Vehicles Test Procedure (WLTP) was adopted to better reflect real-world performance and prevent gaming of thresholds. The malus applies progressively to vehicles exceeding an annual threshold—lowered over time to increase stringency—while bonuses, initially up to 5,000 euros for emissions under 105 g/km, have been scaled back and redirected toward zero-emission vehicles like battery electrics, with the standard purchase bonus phased out by July 2025 in favor of targeted conversion premiums. In 2025, the CO2 threshold stands at 113 g/km, triggering a minimum penalty of 50 euros and rising steeply in bands: for example, emissions of 118-122 g/km incur around 200-500 euros, escalating to 70,000 euros for over 193 g/km. A complementary weight-based , introduced to address the environmental impact of heavier vehicles (often linked to higher consumption and emissions), applies to models exceeding 1,600 kg, at 10-30 euros per kilogram of excess , with the total penalty capped at the CO2 malus maximum of 70,000 euros from March 1 onward. These adjustments, enacted via the 2025 finance law, reflect ongoing refinements to align with decarbonization goals, including integration with emission stickers for usage restrictions. An annual ecological malus supplements the purchase , taxing vehicles registered after with emissions above 140-160 g/km (depending on fuel type), at rates from 100-1,000 euros yearly, to discourage retention of high emitters. Empirical analyses attribute a 20-25% reduction in new vehicle CO2 emissions attributable to the scheme's early years, though impacts have moderated as thresholds tightened and interacted with falling technology costs for low-emission options. The 's design prioritizes fiscal neutrality by recycling malus revenues into bonuses, but revenue surpluses have funded broader mobility initiatives.

Evaluations and Reforms

Empirical Evidence on Effectiveness

A evaluating a 2011 regulatory reform in , , which enhanced experience rating through stricter bonus-malus mechanisms tied to past claims and traffic violations, demonstrated a causal 12% reduction in vehicle claim frequency over the subsequent period, as estimated via difference-in-differences analysis of from over 20,000 s compared to a control city. The effect was driven by diminished , particularly among low-risk and less affluent drivers, with robustness checks confirming parallel trends and mitigating biases from claim underreporting or vehicle ownership changes. In , , the introduction of a revised bonus-malus scheme in the public automobile system similarly lowered accident probabilities by aligning premiums more closely with individual claim histories, providing empirical support for experience rating's role in curbing ex post through dynamic incentive effects observed in longitudinal policyholder data. Complementary analyses of French and international datasets have confirmed that such systems incentivize safer behaviors, with premium adjustments based on claim-free periods correlating to sustained declines in at-fault incidents, though effects are heterogeneous and stronger for or low-mileage drivers. An empirical assessment of Iran's mandatory bonus-malus system, using claim data from a major insurer, revealed efficient premium relativities and convergence toward equilibrium levels after multiple policy years, outperforming simpler scales in and by better reflecting heterogeneous risk profiles and reducing cross-subsidization among policyholders. Similarly, in , post-implementation evaluation post-2002 indicated improved road safety metrics, including lower claim frequencies attributable to the system's introduction, underscoring its capacity to internalize accident costs despite variations in enforcement across markets. These findings collectively affirm bonus-malus systems' effectiveness in enhancing actuarial fairness and safety incentives, albeit with persistent challenges in fully eliminating or adapting to high-risk segments.

Criticisms, Fairness Issues, and Controversies

The bonus-malus system has been criticized for disadvantaging and young drivers, who enter the market with a of 1.00 and no accumulated bonus, facing full premiums despite potentially low mileage or cautious habits; a single responsible claim can then impose a escalating the to 1.25 or higher, amplifying costs for those with limited experience. This structure exacerbates inequities for entry-level policyholders, as the system's retrospective nature rewards established safe drivers while imposing immediate full exposure on newcomers without proportional adjustment. A further fairness concern arises from incentives to under-report minor claims to preserve the bonus, potentially leading drivers to forgo repairs and operate vehicles in unsafe conditions, undermining overall road safety despite the system's intent to promote careful driving. In , where the system is rigidly regulated, disputes over fault determination frequently result in erroneous bonus deductions, with policyholders reporting losses even in cases of partial non-responsibility or external factors, prompting appeals to mediators or courts. By the late 2000s, the system's efficacy waned as improved road safety—driven by enforcement like speed cameras—pushed 97% of drivers into bonus territory, with 64% at the maximum 50% reduction, rendering premiums "frozen" and shifting costs via elevated base rates that all policyholders subsidize regardless of individual merit. This stagnation challenges the mutualization principle, as supplementary insurer-specific perks (e.g., "definitive bonuses" introduced by firms like Maaf and MMA in 2007) erode risk-sharing equity. Controversies intensified with a 2004 European Court ruling permitting discounts up to 65% despite French caps at 50%, enabling select insurers like Matmut and to offer extras via legal loopholes, raising accusations of unequal treatment and prompting calls for incompressible base premiums to cover administrative and residual risks.

References

  1. https://www.ecologie.gouv.fr/bonus-malus-ecologique-definitions-et-baremes-2018
  2. https://theicct.org/practical-lessons-in-vehicle-efficiency-policy-the-10-year-evolution-of-frances-co2-based-bonus-malus-feebate-system/
  3. https://www.euki.de/wp-content/uploads/2018/09/fact-sheet-bonus-malus-vehicle-incentive-system-fr.pdf
  4. https://www.euki.de/en/euki-publications/factsheet-bonus-malus-vehicle-incentive-system-france/
  5. https://www.service-public.fr/particuliers/actualites/A17079?lang=en
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