Car insurers try new tack

A COMMON lament among motor insurers is that underwriting vehicle risk is by its perverse nature a losing proposition. Padded repair bills, damage fraud, theft, third-party claims and the growing trend of young drivers getting into nasty accidents contribute to high payouts.

Moreover, competition among the 30-odd motor insurers has held premiums down. The facts though do not support fully the assertion. Taking the past 5 years - a period when car ownership rose rapidly - as a guide, profits were recorded in 2004 and 2005. In 2006, a loss-incurring year for the industry overall, two of the three largest motor insurers - AIG and NTUC Income - were profitable, proving that motor underwriting is generally not meant for small outfits with limited portfolios and poor histories in settling claims promptly. Last year, however, insurers took a bath. They lost more than S$100 million. As a result premiums have gradually been edging up. The industry has not offered any studies to explain the dramatic spike in losses.

It is true insurers have struggled to come up with the best formula to make vehicle owners feel protected while keeping their underwriting viable. Almost all of the problem is traceble to the matter of what happens after an accident. Damage assessment and workshop fraud are long-standing weakness in the system. The General Insurance Association (GIA) is now proposing a one-stop approach that seeks to eliminate the bureaucratic hassle of reporting and making third-party claims, besides the trauma of organising workshop repairs. Car owners need only inform their insurer after an accident and all issues, down to towing and the use of a replacement vehicle, would be taken care of. This is what is being promised. If the approach can make life easier for motorists caught in stressful situations, while keeping costs down for insurers, by all means give it a go. Previous attempts to eliminate tow-truck racketeering and workshop tampering, resulting in inflated claims, did not have lasting benefits. Why it has been rare for offending workshop proprietors to be taken to court by insurers shows how entrenched the shady practice is.

Premiums are the next issue to consider. One-stop convenience may mean higher initial costs. But over time, the new deal must bring premiums down as fraudulent claims and consequential litigation are reduced. This is how the experiement should be evaluated. Anything less will mark as a failure. Attorney-General Chao Hick Tin reminded a fraud management conference last year that the true cost of insurance fraud was borne not by the insurers but their customers. Car owners have no reason to be smug just knowing they are "covered".
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