Singapore Experience in Motor Insurance: A Success Story
3rd Asian Conference on Claims Management in Insurance
Asian Insurance Review
April 2005
Paper by Tan Kin Lian, Chief Executive Officer, NTUC Income

1. RESULTS

NTUC Income holds the biggest market share of motor insurance in Singapore.

Singapore Market - Motor Insurance

NTUC Income - Motor Insurance

We achieved a significant growth in our market share during the past 5 years. This growth was achieved with a satisfactory level of operating profit, i.e. underwriting profit plus investment income.

We have made adequate provision for our outstanding claims, which represent about 107% of the premium (as compared to 103% for the Top 5 insurers). We have a higher speed of settlement of claim, so our provision is probably higher than required.

2. STRATEGY

We are able to achieve the above results due to the following strategy:

  1.. Competitive premium rates
  2.. Better claim management
  3.. Better expense management
  4.. Better customer service

These are covered in more detail below.

3. COMPETITIVE PREMIUM RATES

We are able to offer competitive premium rates due to better claim management and lower expenses. Our premium rates are reviewed every six months. We determine our premium rates based on an actuarial analysis of the claims submitted during the previous 24 months.

The claims are analysed according to the risk factors, such as the characteristics of the vehicle and the owner, and the type of coverage. We used this analysis of the claims to work out the points to determine the premium rates. We may adjust the points to some extent, to ensure that our premium rates are competitive.

On the whole, our strategy is to get correct premium rates based on our claim experience, rather than to follow the rates that are charged by our competitors. With a 44% market share (in terms of number of vehicles), we are able to set the level of premium rates for the market.

Here are the figures to compare the average premium rate:

4. BETTER CLAIM MANAGEMENT

We adopt pro-active claim management. Our strategy include:

a. Tender of repair
b. Motor repair cost software - MRCS
c. Direct settlement of third party claim
d. Pro-active handling of injury claim
e. Work closely with lawyer to handle legal cases.

4.1 TENDER OF REPAIR

We handle an average of 60 repairs a day, comprising mainly of vehicles insured by us. The claimant reports the claim at an independent assessment center and leaves the vehicle for us to arrange the repair. After the damages are assessed by the center, we invite our quality workshop to tender for the repair.

The tender is usually awarded to the lowest tender. We are able to reduce the repair cost by an average of 20 percent using this method, compared to the traditional method of negotiating the repair cost with the workshop selected by the owner.

4.2 MOTOR REPAIR COST SOFTWARE - MRCS

We recently introduced a new system (MRCS) to estimate the repair cost for motor vehicles. We have recently purchase a database system from a research organisation in the United Kingdom. It comprises of computer software and a database of parts prices.

Our surveyor identifies the damages to the vehicle and enters the parts into the software. The software estimates the cost of repair. Our surveyor finds the software to be user friendly and flexible.

Our key challenge is to obtain the parts prices and to keep them up-to-date using two sources:

a) The research organisation has provided a database comprising of 500,000 parts prices collected from 34 car manufacturers worldwide. As the prices are relevant to the UK, we use conversion factors to convert the prices to be relevant to Singapore. The conversion factors have been tested to be quite reliable.

b) We are building our own database of part prices provided by our quality workshops, based on recent repairs carried out. We have now collected reliable prices for 30,000 parts prices.

We have compared the prices with those obtained from our tender system. So far, the experience of using the database bases been quite positive.

The database now comprise of:

We estimate a potential saving of $1.5 million using MRCS:

  1.. Saving of $240,000 paid currently to a service provider to obtain the market prices of the parts. With MRCS, we are able to dispense with this service and obtain reliable prices.

  2.. Reduced reliance on external surveyors, leading to a potential saving of $1.2 million on survey fees. With MRCS, our surveyor can carry out more of the surveys internally.

We use the MRCS in a dynamic way. We compare the data with that gathered by us independently from the recent repairs done at our quality workshops to ensure reliability in our local context.

4.3 DIRECT SETTLEMENT OF THIRD PARTY CLAIM

The third party claimant usually appoints his workshop to submit the claim against us, in the case where our policyholder is responsible for causing the accident. In the past, about 50% of the claims are submitted through a lawyer appointed by the workshop. The claim is increased by an average of 30%, representing the legal fees.

We approached these workshops and work out an arrangement for them to submit the claim directly to us, instead of going through a lawyer. The workshop benefits from easier and faster settlement of the claim.

Less than 20% of our claims are now submitted through a lawyer. The rest of the third party claims are now submitted directly to us. The estimated saving in legal fees is $3 million a year.

4.4 PRO-ACTIVE HANDLING OF INJURY CLAIM

In the past, the injured person approaches a lawyer to handle the injury claim. Each year, we settled about $42 million in injury claims, of which about 35% are represented by legal fees. The injured person has to wait for about 12 months to have the claim finally settled.

We now adopt a pro-active approach to handle these claims. We approach the injured person immediately, if we are aware that they are injured. We offer advance payments to help them to meet their medical expenses and loss of income.

We also arrange for them to get independent advice on their general damages, i.e. to cover permanent injury.
Our aim is to have the claim settled promptly and fairly, and to avoid the legal cost and unnecessary expenses. This approach appears to be working well. We estimate a potential saving of $4 million a year.

4.5 PRO-ACTIVE HANDLING OF LEGAL CASES

In the past, we adopted a passive approach and depended on our lawyer to handle the legal case in court. We paid about $16 million a year in legal fees (for both parties) and court charges.

The third party lawyers were submitting more claims through the court, as they can claim their fees from us on the settlement of the claim. They are encouraging the workshop to use their service, as the fee is charged to the insurer.

We discovered a court process called "offer to settle". If we submit a reasonable offer to settle, and the final award is less than our offer, a large proportion of the legal fees and court charges will have to be borne by third party.

We are now getting a higher proportion of the legal cases settled at an early stage. We expect to save about $6 million a year in legal expenses.

4.6 ESTIMATED SAVING

We estimate that the total savings from the claim management measures could account for 5% to 10% of the premium.

 5. BETTER EXPENSE MANAGEMENT

We operate at expenses compared to the industry. Our total expenses (i.e. agent's commission and administrative expense) as a percentage of premium is:

NTUC Income - 20%
Rest of industry - 30%

We are able to achieve a lower expense ratio through the following measures:

  1.. Economy of scale
  2.. Higher degree of computerisation
  3.. Simplification of work process
  4.. Direct internet linkage with agents, assessment centers and workshops e. Lower commissions paid to agents

 6. BETTER CUSTOMER SERVICE

Generally, our customers are happy with us. This is reflected by the following measures:

  1.. High customer satisfaction on of 90% to our handling of repairs
  2.. High renewal rate of 83% (excluding non-renewals due to change of vehicles)
  3.. Increase in market share

We adopt an active approach in communicating with our customers. We issue a practice note on our handling of repairs, especially on the sensitive issue of awarding the repair through tender. This practice note is posted on our website and is also issued just-in-time to the customer at the time of submitting the claim.

It describes our quality assurance, as follows:

  1.. Re-inspection of the vehicle immediately after repair
  2.. 6 month warranty on the repair
  3.. High customer satisfaction on the repair

We also communicate with our customers actively through the media, by circular letters and through dialogue sessions. We carry out a regular survey to get the views on various aspects of our customer service.

7. LESSONS

Motor insurance is a big market. It is also a highly competitive market. To be successful in this market, we have to:

  1.. Be more efficient in managing the business
  2.. Be more competent in handling of our claims effectively
  3.. Be more correct, i.e. charge the right premium using actuarial analysis
  4.. Delight our customers, by treating them fairly and giving good service

8. CONCLUSION

It is possible to increase the market share by charging lower (inadequate) premium rates and show a profit by under-reserving for the outstanding claims. This is not sustainable. We prefer to build up our competency in running the business better than our competitors, to ensure that we can have a larger market share and profitable results.