NEM seeks to tackle for underwriting losses
Published:Sunday | September 26, 2010 | 12:00 AM
Sabrina Gordon, Business Reporter
The general insurance subsidiary of Jamaica National, NEM Insurance, in the face of high underwriting losses in the motor line of its business, has implemented measures to reduce the impact on its operations. These measures will possibly see particular groups of motorists seeking coverage elsewhere.
"Last year, we suffered significant losses in our motor underwriting, and this is not sustainable, particularly given the declining interest-rate environment," said Christopher Hind, general manager of NEM Insurance.
"And now we will have to make up that loss ... . So the need is to look at our core business and make adjustments where necessary so that at least we have as much premium income as we pay out in claims and administrative expenses," he said.
At the end of December 2009, NEM recorded gross premium income of $3.14 billion, but it incurred considerable underwriting losses of $1.47 billion in its motor business, due, the company said, to high levels of automobile crashes and motor-vehicle theft.
Significant changes
"The situation was untenable and represented a significant risk to our business," said Hind in his statement presented in the parent company's annual report.
"In 2010, we effected significant changes in our underwriting procedures, including the elimi-nation of motor schemes from our book of business, the removal of certain categories of public-passenger vehicles, and shifting business from brokers whose business profile differed from our strategic focus," he further reported.
In the insurance industry, Hind explained, a great many schemes or blocks of business are done, and persons with common risk profiles are pooledto give premium advantage through the broker instead of underwriting the risk individually. These schemes, Hind said, in some cases, become too broad, and the risk may not be properly assessed.
"We found that the risks within these schemes are not being assessed properly, so we have stopped writing these businesses," said Hind.
"We have discontinued all because there wasn't enough commonality among the members of the scheme," he added.
NEM is one of the largest insurance companies underwriting motor risk, with gross premium income at the end of June 2010 totalling $ 878.6 million, according to data obtained from the Insurance Association of Jamaica.
Between January and June 2010, the company incurred motor claims of $646 million, the second highest claim figure of the 11 general insurance companies in the market.
Along with its motor line of business, NEM also offers the complete range of general insurance products, including property and liability for both personal and business clients.
Leveraging its parent company's locations, NEM processes 14 per cent of its insurance portfolio through JN locations. Another 59 per cent is done via brokers, with the remaining 27 per cent done directly through NEM officers.
The other groups of motorists who will come under scrutiny by NEM include drivers of public-passenger vehicles such as taxis and buses.
"Other areas under significant scrutiny are public-passenger vehicles, taxis, and buses in which we have very high claims, and their use of road is not as good," said Hind.
"We are being more rigorous and very selective in the risks we take on," he asserted.
"The focus is looking less at premium income or market share, but at good premium income, good claims experience, a good solid book in the motor area, and not so much about the biggest," he said.
"We want to tighten up our motor book, returning to core profitability and a good group of insured customers," Hind told Sunday Business.
Losses in the motor market are not unusual and at least one player - American Home Assurance - has exited the market.
But despite racking up huge losses in the motor line, Hind was keen to make it known that the company had no intention of exiting the market.
"We still intend to be a significant motor underwriter and have no plans to exist the motor-insurance industry," said Hind.
Gross motor insurance claimed at the end of last year totalled approximately $9.1 billion, and for the fist half of 2010, claims are up to $4.1 billion so far.