The absurdity of choice for bike insurance

Insurance Helpline, With Cedric Stephens

Question:

I have been faced with the high cost of motorcycle insurance for years. I feel that the premiums are unreasonably high in the context of the limited coverage which is locally available.

Additionally, in collisions between motorcycles and other vehicles, the other vehicles are likely to sustain less damage than in the case of collisions between two four-wheeled vehicles. It is absurd for motorcyclists to be charged the same or more for third party coverage than motor cars. What do you think?

- mcgrer1@hotmail.com

HELP LINE:

Some motorcyclists are up in arms against insurance companies for the high premiums that they have to pay. This conclusion is based on the emails that I have received in response to my article, 'Bikes cheaper than cars, more expensive to insure', which was published on February 5. The person who posed the original question - oniel_rohan@yahoo.com - claimed after he read what I wrote, that I had "selectively used data from foreign countries to cement (my) position (and was taking) a casual approach ...".

The other points he made, which were edited for brevity, were:

1. The data in the article deals with fatalities and severe injuries. Motorcyclists are more prone to fatal accidents and injuries than car drivers. The US government has mandated that motorcycle insurance covers death and injury to motorcycle riders.

2. Insurance companies in Jamaica offer only third-party liability coverage to motorcyclists. Coverage for injury or death of riders is excluded. The absence of coverage for riders reduces the risks for insurance companies.

3. Third-party liability premiums for bikes should be lower than that for cars. A University of South California study (for which he provided no other details) found that 'the drivers of the other vehicles violated the right-of-way of motorcyclists and caused two-thirds of car-motorcycle collisions'.

4. Local motorcyclists are probably subsidising the premiums of car owners.

I like to exchange opinions with readers, even when they criticise my ideas or question my motives or do some of the same things that they accuse me of doing. I learn from criticisms.

My general rule is to ignore the comments which imply that I have a hidden agenda. In this particular case, I learnt that some motorcycle insurance buyers, like you and the other reader, feel very strongly that bike premiums are too high.

When I reread the article that I wrote in February, I discovered that one important thing was missing. It was that the market for motor insurance in general, and bike insurance in particular, is getting smaller. This factor, I suspect, more than anything else, accounts for the limited choices that motorists in Jamaica have.

In the US, for example, there are thousands of insurers that write motor insurance. In Jamaica, there are only nine companies that actually write it. Not all of them insure bikes. Trinidad, which has a much smaller population than Jamaica, in contrast, has nearly twice the number of general insurance companies.

Marcella Scarlett, a reporter for the Financial Gleaner, wrote an article on February 24 which stated that local motor insurers recorded losses of over J$6 billion between 2001 and 2010. Gross claims amounted to J$57.17 billion over the period while expenses totalled J$22.54 billion.

Net earned premiums, on the other hand, amounted to only J$73.37 billion. These figures are for cars, trucks, taxis, minibuses, motorcycles and other types of vehicles.

These global numbers do not provide any details for one to conclude whether or not insurers are charging too much or too little to cover mo-torcycles. However, they offer clues why the market is contracting.

The process by which insurers calculate insurance premiums in Jamaica is not transparent. Our insurance regulators, unlike their opposite numbers in some US states, do not oversee the process or have to approve requests from insurers before price adjustments are made.

Our approach assumes that if imperfections occur in the marketplace, unseen hands will correct them or, that buyers like you, will have to make do with the limited choices. There are far more important matters to occupy the minds of the persons who run the Financial Services Commission.

This is far as I can go in the absence of more information. Do not expect to hear a peep from the Ministry of Finance which has portfolio responsibility for insurance. It is far too busy preparing for talks with the International Monetary Fund.

Insurance Association of Jamaica, it is now your turn to furnish more data on the subject.

Cedric E. Stephens provides independent information and free advice about the management of risks and insurance. aegis@cwjamaica.com. SMS/text message to 812-7233.