New Motor Insurance Measures – Will it work?

The insurance companies lost over $100 million in 2007 on motor insurance. The General Insurance Association, a trade body that represents the insurance companies, announced that they will introduce new measures from 1 May 2008 to combat the escalation in the insurance claims.

A thought crossed my mind, "Here we go again". I have heard this message many times during the past years. I recall the saying, "Those who have not learned the lessons of history are doomed to repeat it".

What are the lessons of history?

The situation today is a repeat of what happened five years earlier. In 2002, the motor insurance companies also lost over $100 million in their operations. They announced the establishment of the independent accident reporting centers, or Idac centers, to combat the escalation in motor repair costs. After promising action, the insurance companies promptly jacked up the premium rates by more than 20 percent.

This time round, from the lesson of history, you can expect the premium rates for motor insurance to increase by more than 20% in 2008.

What measures is the trade association proposing this time? The media release said that motorists are required to notify their insurance company within 24 hours of an accident. The insurance company will arrange for an assessor or tow truck to the scene of the accident or the current location of the vehicle. This will stop the motorist from bringing the vehicle to a workshop where the damages can be aggravated.

I do not know how many assessors and tow trucks are required to handle the number of accidents each day. Will there be sufficient assessors and trucks? Will the insurance companies be able to manage the logistics? It seems to be much more expensive to send assessors to the scene of the accident, instead of asking the motorist to drive the vehicle to an Idac center.

The requirement to submit an accident report within 24 hours has existed for the last decades. It did not work before – as the insurance company did not have sufficient resources to handle the assessment of damages. This was the reason for the setting up of the Idac centers in 2003.

If motorists are reluctant to send their vehicle to an Idac center for assessment, will they be willing to wait at the roadside for the assessor to appear? And how can the insurance company ensure a satisfactory quality of work by the assessor in the field? Time will tell if this new system can work well.

Insurance companies in Singapore have generally been weak in managing repair costs. Many motorists who have been involved in an accident have been quoted two prices for a repair – a smaller amount if he pays on his own, and two to three times of this amount, if it is paid through insurance.

If this is common knowledge, why are the insurance companies not able to remedy this matter?

In my view, there is no commercial pressure on the insurance companies to bring down the repair costs. It is easy for them to jack up the premium rates following a year of bad results, such as in 2002 and 2007 – provided the bad claim experience applies to all the insurance companies more or less equally.

Higher claim payments are good for the various businesses involved in this trade – the repairers, the manufacturers who supply the parts, the agents who sell the insurance and arguably even the insurance companies who add to their profit margins.

The only party that suffers is the consumers who have to pay a higher premium for the inefficiency and waste. But the consumers have no real choice. Motor insurance is compulsory. There is a prevailing view that the conduct and pricing of motor insurance can be sorted out by the market. The consumers can fend for themselves.

To bring down the inflated repair costs, the insurance companies have to address the root of the problem. The insurance association appears to be quite confident that the new measures will address these problems. This remains to be seen.

Is there anything motorists can do in the meantime?

Yes. First, be ready to do some work. When you get your insurance renewal notice, you should call the hotlines of up to five insurance companies and ask for a quote. If you ask the insurance company directly, you can save up to 15% of the premium that is paid as commission to the agent.

Second, write to the consumer association or the regulator, namely the Monetary Authority of Singapore, if you find the increase in premium to be unjustified. As motor insurance is compulsory, the regulator has a duty to make sure that the cost to the consumer is fair. Consumers are now paying too much due to the inability of insurance companies to manage the fraudulent claims and expenses.

Tan Kin Lian

The writer was the former chief executive of NTUC Income.