Severe underpricing is not the only issue that's plaguing the insurance industry. Some insurance companies undercutting their competitors only compounds the situation. This was the cry of some insurance company officials who were interviewed by the Business Guardian on Monday. The claims manager at a Port-of-Spain-based insurance company, who requested anonymity, said that in addition to the severe underpricing of premiums, some insurance companies are undercutting others, which is creating chaos and havoc within the industry.
He said the undercutting should not be allowed to continue as it lends itself to underpricing practices. Drawing on an example, the claims manager said he offered a client a fully comprehensive insurance coverage for a Nissan Navara 4x4 sports utility vehicle at a premium of $14,000 a year. When an agent from another insurance learnt about this offer, the client was offered $9,000 fully comprehensive. "But because there is no fixed schedule for charging premiums, some companies tend to take advantage of that."
He said the insurance industry is a very complex one and, while it was difficult to have standard prices, a pricing range should be established whereby companies are not allowed to go over or under a certain range. The claims manager spoke of another sore point, that of consultants who act on behalf of persons injured in accidents. Calling them ambulance chasers, the claims manager said this was becoming a phenomenon.
He explained that consultants would file legal action on behalf of the injured party and when the matter is settled with the insurance, these consultants take a 30 to 40 per cent cut of the compensation. He said all these activities bare heavily on claims and if some companies are under pricing, they would not be able to afford these payouts. Pointing to another example, the claims manager said his insurance company had to pay an award of $86,000 plus costs of $20,000 to an accident victim who suffered from soft tissue damage and laceration to the arm.
He said he agreed with the Central Bank Governor Ewart Williams regarding the increase in premiums.
"We have no choice in the increase... hate to put pressure on the consumers, but the industry has no choice at this time," he said. "We are fighting an uphill battle.. ...its mind-boggling to come to terms with all these different scenario and find solutions for them," he said. He said because the insurance is a risky business they took a hard decision to limit their covers to certain maxi taxi drivers who are owners of their vehicle. He said the company do not insure maxi taxi because of the unruly behaviour demonstrated by hired drivers.
Severe underpricing
Insurance companies, agreeing that there is severe under pricing in the third party motor insurance industry to maxi and taxi owners, are rooting for higher insurance premiums. John Barkley, operations manager of Gulf Insurance Ltd, said, "I agree that there are some insurance companies that are engaging in underpricing premiums under the Third Party Act and, as such, the increase is welcomed."
Barkley said this was a serious concern as there are so many overheads that need to taken into consideration apart from claims. Some of the overheads include management expenses of 15 per cent, acquisition cost-agents and brokers- of 12 to 15 per cent, reinsurance, which depends on the type of treaties-another ten to 15 per cent. Regarding claims, he said ,in an accident, depending on the injury a person can claim as high as one to two million.
Taking all this into consideration, if the company's premium is too low, it cannot meet these expenses because there is insufficient money in its reserves. "Therefore, I would support a 15 per cent increase, which is sustainable," Barkley said. He explained if a company's loss ratio is more than 55/60 per cent, then it needs to review its premium. Asked how these insurance companies manage to survive, Barkley said, "They are in the business for cash flow underwriting. They do not consider their long-term liabilities...what you sell today, you make today."
"They survive by delaying tactics-delay of payment and claims. In essence, they are digging a hole to fill a hole." Barkley said because the insurance industry is very risky, some insurance companies select the best risks. "We do not write risk for rental vehicles and maxi-taxi in the east/west corridor-there are too many accidents." He said insurance companies treat their customers just as the banks do: if customers do not have equity or collateral, the companies do not write the business.
Protest against higher premiums
"Insurance companies are a legal rip-off." This was the view by many maxi- and taxi-drivers when asked for their opinion about underpricing of third party insurance and a possible increase in premiums.
They said it was a no-win situation for them as they, too, incur heavy expenses compared to what they earn daily. Christian Serette, who has been operating his maxi-taxi for 28 years, said owners always get a raw deal. Serette, who plies his 25-seater maxi-taxi from Arima to Port-of-Spain, said, the cost of a maxi-taxi has increased. Two years ago, a 25-seater Mitsubishi maxi-taxi cost $485,000. Today, it's about $600,000. The fully comprehensive premium on that is between $50,000 and $60,000.
He said the cost of maintaining a maxi-taxi from wear-and-tear is at least $8,000 a month. He said everything was going up except maxi fares. "Therefore, when you take all these cost into consideration against the maxi-taxi fares, we are subsidising transport. Insurance companies always give problems to pay claims. They take months before you receive your money." Another maxi-taxi driver who worked the Arima/Port-of-Spain route, said they have to work about 15 hours to make $400. Others said they make around $600 a day.
Sham Mohammed, a taxi-driver working the Port-of-Spain to south Trinidad, said insurance companies are making money regardless of how much they charge for third party insurance. Fellow taxi-driver Ronald Patrick said third party insurance is a rip-off because drivers do not benefit, but preferred fully comprehensive coverage. The drivers interviewed said they do not agree with any planned increase in premiums, but inevitably, such costs would be passed onto the consumers.
Insurance coverage
25-seater maxi-taxi cost: $500,000
Insurance coverage: 12 per cent of the sum insured, $62,500 gross
With a 45 per cent no claim discount, premiums can range between $34,375-which may vary slightly for different insurance companies-and $38,000
15-seater at $250,000-
Coverage: 12 per cent
No claim discount: $18,000-
Taxi-drivers: apply the same 12 per cent of the sum insured
But increase it by 60-70 per cent if it is a young driver (three years' experience and under 25 years)
2008
Total motor vehicle claims: $468,419,187
Theft claims: $33,113,751
Number of vehicles stolen: 2,215
Estimated cost per vehicle: $14,949.78
Estimated accident claims: $435,305,436
2007
Total motor vehicle claims: $388,855,982
Number of vehicles stolen: 2,375
Estimated total theft claims: $35,505,728
Estimated accident claims: $353,350,254
Source: Association of T&T Insurance
Companies (ATTIC) Report on Motor Vehicle Insurance Claims paid by Insurance Companies