Insurance now a seller's market
Published:Sunday | May 9, 2010 | 12:00 AM
Question:
My car was stolen 11 months ago. The claim was settled for J$897,000. It was my first and only claim. Other insurers don't want my business.
They say I am a high-risk client. Only the company that insured the stolen car appears willing.
Another insurer, with whom I have had a relationship for about eight years without submit-ting a claim, has also refused to provide coverage for an additional vehicle. They said I should contact them in three years. I have offered to install a tracking system in my car, but this has not made any difference. Can you please explain to me what is happening?
Answer: The four insurers you approached controlled nearly 53 per cent of the motor market at the end of 2008. They reported combined losses of J$412.3 million on this line of business that same year. The market for motor insurance operates like other places where goods and services sold.
Many of the same things that affect the prices and availability of houses, the items we buy in the public markets and supermarkets in the towns and villages across the island, energy costs, and foreign exchange - to name a few - also touch the market that provides insurance coverage for motor vehicles.
The market for motor insurance is fast becoming a seller's market. Insurers appear to be selecting who they insure with more care than they have done in the past.
The Government of Jamaica Debt Exchange programme - part of the recently concluded Inter-national Monetary Fund loan agreement - has contributed to the change in the insurance marketplace.
Under the programme, holders of certain domestic government bonds issued on or prior to December 31, 2009, that mature on or after February 16, 2010, were required to exchange those instruments for new, longer-dated debt instruments at lower rates of interest.
Motor insurers, like other companies in the financial services sector, were holders of the bonds.
Subsidy removal, low interest rates
In former years, high rates of returns on these investment instru-ments subsidised insurers' opera-ting losses. With the removal of the subsidy in the form of lower interest rates, motor insurers are being forced to take action. Some of these measures include those you have experienced, and premium hikes.
One consumer I know saw the premium for her 2002 Lexus SUV - with an estimate of value of J$2 million - jump from J$99,537.16 to J$277,148.50.
The increase of approximately 177.5 per cent occurred after an accident where she was not at fault!
The Insurance Information Institute said in 2008 that United States auto insurers spent US$98 of each US$100 of premium to pay claims to injured persons, make payments for damaged vehicles, and cover overhead expenses.
In the United Kingdom, car insurers are said to be struggling to make a profit.
Underwriting losses of £1.3 billion and £1.1 billion were reported in 2008 and 2007, respectively.
During the past decade, 2004 was the only year in which the UK industry reported a profit.
On the local scene, insurers have reported motor-underwriting losses topping J$3 billion during the last five years. These results occurred at a time when returns on most investment instruments were in double figures. Returns are now projected to be much lower.
The motor-insurance market is getting smaller. One company has decided to stop this class of insurance. Another is planning a merger.
A fairly large broker sold its book of business to three other companies. The country's largest insurers have stopped doing business with another large broker.
All of these developments will have some effect on buyers. We are probably seeing early signs that insurers now believe that market-place power has shifted from buyers to sellers.
Ask an insurance broker to do some more legwork for you. Tell them about your plan to install a vehicle tracker. In addition to seeking quotations for compre-hensive coverage, ask them to obtain premium estimates on the bases of a theft deductible of 10 or 15 per cent of the vehicle's estimated value, and the exclusion of theft.
Do the sums and then decide what your best option is. You are still in control, even if it is now a seller's market.
Cedric E. Stephens provides independent information and free advice about the management of risks and insurance. aegis@cwjamaica.com. Text (SMS) message to 812-7233.