Viability of motor insurance

SO much has been said about motor insurance the past few weeks.Firstly, there is a low level of knowledge of insurance among the general public and often this fuels numerous complaints in the press. Insurance is basically a pool or a fund managed by an insurance company where all policyholders contribute their premiums and from this fund, are paid claims both from vehicle owners and third party injureds. Having said this, it follows that if the fund does not have enough money, then policyholders will have to pay more for their premiums in the renewal year, regardless of whether one has made any claims on their policy or not.In simple language, all vehicle owners are in the same boat; all of us either sink or swim, so if there are insufficient funds to pay claims, premiums will inevitably have to increase in some way or other. It is obvious that many do not know that motor insurance is generally a high loss business in many countries and Malaysia is no exception.In fact, PIAM (Persatuan Insuran Am Malaysia), the representative of all insurance companies in Malaysia, in its article dated April 24 in the New Straits Times, stated: 揕osses have been increasing every year... and the combined loss ratio for motor business in 2008 was 115.5%."PIAM further stated that third party bodily injury claims have exceeded 100% for many years and skyrocketted to 262% in 2007.The first half of 2008 showed a whopping 340% loss ratio and this trend of high losses is not likely to be reduced. So what is the cause of the high losses? Everyday there are reports of accidents. The number of accidents involving vehicles are tremendous. Everyone is to blame - the private car drivers, the stage and interstate bus drivers, the heavy vehicle drivers, the taxi drivers, hire car drivers and not forgetting the motorcyclists.Something must be done to check the high rate of accidents because this high volume of accidents will eventually end up in claims, both vehicle damages and bodily injury claims.The public is also unaware that third party injury claims are settled based on inflation adjusted amounts by the courts.Some of these bodily injury claims take years to get heard and when they are eventually settled, the court awards an interest of 8% for general claims (injuries) and 4% for special damages (actual bills incurred).In this day and age, where can a company obtain an interest rate of such percentages to be able to pay such awards? This obviously contributes to the high motor insurance losses.From the perspective of the insurer, if claims are to be paid on inflation adjusted awards, then premiums should technically be adjusted likewise.The last increase in motor insurance premiums was in the 1970s.It is not my intention to defend insurance companies but with increasing losses, they will definitely try to find ways to stay afloat, sometimes even turning away policyholders by applying surcharges or applying other restrictive terms.Shifting the focus to insurance agents does not seem to be the way out of this problem either.In Malaysia, most agents are reacheable 24/7 and they play an important part of bringing the customer to the insurer.The agent bridges the gap of the sometimes ignorant customer and arranges the appropriate cover for him. In doing so, the agent takes away the management cost of the insurer in closing the sale, and therefore have to be paid for their services. At the moment, the agent抯 commission is fixed at 10% and this percentage has been a bone of contention which the agents have with their principals.

So what does all this mean?1. The high rate of accidents are causing the high losses.2. In the present situation, with the investment returns falling coupled with the high claims ratios, insurance companies will not be able to sustain the losses and if continued, the authorities will have their hands full trying to ensure that such companies maintain their margin of solvency. Already one company has recently been reported to be taken over by Bank Negara Malaysia.3. A the end of the day, motor insurance premiums will have to be increased for everybody, whether we like it or not, that is if there are still companies wanting to accept motor business.

What should be done?1. Something has to be done to check the rate of accidents.2. Perhaps driving tests should be reviewed:a) instruction on the highway code and related subject to be taught more comprehensivelyb) teach insurance knowledge; andc) apply a more stringent practical evaluation. (How many drivers stop at junctions before dashing out?, how many motorists are obeying traffic lights?)3. For the drivers of heavy vehicles, there should be mandatory safety driving programmes that they must participate in. For such drivers too, there must be a cap on the number of driving hours which they can drive on the road. Medical tests for such drivers should also be made mandatory yearly, if not half yearly.4. For the owners of the heavy vehicles and public service vehicles, they must be made responsible for actions of their drivers. Often the scenario in a disastrous accident, where deaths are involved, is that the driver is charged and the insurance company ends up paying the claims. Other than the vehicle being off the road for the duration of the repairs, the owners have no other liability. I feel that insurers should be allowed to apply deductibles even for injury claims so that the owners will take more responsible action for their drivers' misdeeds. If the owners can show that they have undertaken such safety programmes for their drivers, then application of deductibles for them should be allowed to be waived.5. Penalties should also be increased for owners of vehicles who do not maintain and keep their vehicles in roadworthy condition. Often we hear of accidents resulting from brake failure or poor condition of tyres or something relating to the mechanical aspect of the vehicle.6. Penalties for negligent driving has to be increased. Perhaps fines only are not sufficient to ensure that the culprit does not continue to break the law. 7. Road checks have also to be enforced to ensure that vehicles that are not roadworthy are not allowed on the road. Probably this dragnet will also reveal unlicensed drivers or even motorists without insurance cover.

Everyone must play their part to ensure that our roads are safe, our accident rate low and our insurance losses manageable.The authorities must look into this holistically as this is not something limited to one party or one section of the motor industry.If this is not looked into and checked now, insurance will not be the way out because eventually the insurers too will become insolvent and where then do we place our compulsory third party insurance?

- Uberrima FidesKuala Lumpur