Overhauling the motor insurance industry
Given the record number of vehicles being imported, ensuing road congestion and the increase in accidents, the motor insurance industry should be closely scrutinised. Today, Sri Lanka’s motor insurance industry is dominated by a handful of companies but is lacking the best practices and standards compared to the rest of the world. It is plagued with the following issues:
Vehicle-centric insurance. The driver of the vehicle is not a risk factor for insurance. An 18 year-old and a 60 year-old should not have the same risk profile, but these demographics have been ignored and the vehicle value is key when drafting an insurance policy.
The public is secondary. Prominence is given to the insured vehicle and not necessarily to the public or public property. Whilst a fully comprehensive insurance covers the vehicle in the event of an accident, the passengers, general public and third-party property pay-offs are capped at a nominal amount, compared to the vehicle value.
Mismanaged faults and claims. The current system does not encourage claims from the ‘at-fault’ party in an accident. To do so, the ‘not-at-fault party’ needs to take the matter to a court of law, which can turn out to be a time-consuming and costly affair, especially when pedestrians and/or stationary property are involved.
Insurance exploitation. Motor vehicle insurance is abused in many ways, such as multiple claims made for the same incident, overestimation of damages, fraudulent claims, etc. Whilst the insurance companies pay directly, the cost is passed on to the insurers indirectly in the form of elevated premiums, affecting all policy holders.
Market inefficiencies. There is a lack of communication amongst competing insurance providers. The market is so ruthless that insurers/sales personnel will do whatever is necessary to acquire a new client, including turning a blind eye to claims and accident history. This short-sightedness of the insurance companies proves costly to everyone but the errant drivers.
The industry’s focus should be on how to provide a better insurance service. To do this, the motor insurance industry needs to be redefined through legal and operational changes underpinned by unprecedented information technology.
Insurance database. A database is recommended for insurers to collect and collate details of accidents, claims, insured parties, drivers and any other third parties. Such information should be shared between insurance companies and the authorities (via a CRIB-like database for insurance purposes).
Permitted drivers. Insuring a vehicle alone is not sufficient. The insurance should list the permitted drivers. Any other person driving the vehicle should be deemed uninsured under any circumstance.
Profile drivers and implement a risk-based pricing strategy. Permitted drivers and their demographics should be considered when premiums are decided. For instance, if an 18-year-old, or a driver with multiple ‘at-fault’ accidents is listed on the policy as a permitted driver, the risk will be greater, resulting in higher premiums and vice versa.
Shift in focus. The primary focus should be the third parties and those affected by any accident and the ease of obtaining compensation for a third-party claim. The insured vehicle should be a secondary concern. The claims process should be streamlined to assist the ‘not-at-fault’ parties.
Reinforcing the legal framework. The legal framework should be modified to take these changes into account, including strict reprimands for uninsured drivers and for vehicle owners who permit unqualified individuals to drive without a licence or valid insurance.
Keeping their personal and corporate objectives aside, insurance companies, insurance agents and the authorities should welcome such changes that will ultimately benefit the entire nation.
(The writer is a Sri Lankan professional based in the UK and can
be reached at dineshr @mail.com)