A hierarchical fuzzy logic control system for Malaysian motor tariff with risk factors

Abstract

In many countries, including Malaysia, it is made compulsory to have a motor insurance policy and the premium is determined based on the Motor Tariff which ensures that a standard premium is imposed to the policyholders. At present, the premium in Malaysia includes only two factors which are the sum insured and the cubic capacity of the engine. Many existing methods used to calculate the tariff depend solely on the data and does not enable the experts to provide their input into the system. In contrast, the rule based system which is used in the Fuzzy Logic Control System could cater for the experts’ input. This research aims to develop a system that can determine the motor tariff using the Hierarchical Fuzzy Logic Control System. Besides the sum insured and the cubic capacity of the engine, the system will also incorporate the risk level of policyholders into the Motor Tariff. As a prototype, two selected risk factors are used, namely the age of drivers and the age of cars. The risk premium subsystem is developed before combining it with the main tariff premium system that constitute the Hierarchical Fuzzy Logic Control System. The result confirmed that the premium is loaded when the risk level is high and discounted when the risk level is low. The finding is in tandem with Bank Negara Malaysia (BNM) impending detariffication exercise for determining the motor insurance policy.