Insurers jack up motor premiums
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Insurers jack up motor premiums
Jamaican motorists could see as much as a 30 per cent increase in new premiums, as insurance companies jack up rates to offset for a massive decline in investment income and a sharp rise in personal injury claims.
"The average price change that we have put in is a little over 30 per cent, particularly on the third party side," ICWI Insurance president Paul Lalor told the Business Observer.
Lalor, who is also president of the Insurance Association of Jamaica, added that motorists should expect to pay around 10 per cent more on comprehensive insurance.
"The element in the comprehensive which covers third party liabilty will also have changed slightly, but as a percentage, it's not as big a change in comprehensive insurance as it is in third party," he said.
According to Lalor, the price adjustment was made to cushion the effect of the fallout in returns on investment following the Jamaica Debt Exchange (JDX) — when Government exchanged high-interest domestic debt for cheaper bonds — and to improve the performance of what local insurance executives have long claimed is a weak core business.
"What you are seeing now is simply a correction in the market to make sure that companies come as close to break even as they can to make a return to keep themselves profitable," noted Lalor.
"When we were earning 20 per cent interest rates from Government paper, we could afford to make a loss (on insurance) because we would make some profit with the difference between interest income and the insurance," he continued. "But when they had JDX and that 20 per cent went down to six per cent, obviously we couldn't afford to lose as much money on insurance.... The only thing that could change at that point was to improve the results of the insurance business itself."
A Business Observer survey conducted in April revealed that general insurers saw net profit decline by 20 per cent in 2010, with investment income dragging down bottom lines.
Gross premiums booked by seven general insurers last year totalled $21.9 billion, up from $20.99 billion, while net claims fell by $1.3 billion to $7.4 billion. The upshot was improved underwriting performances from the insurers core business, but the improvement did not translate into higher net profits due to the sharp decline on returns from investment. Combined, the reviewed insurers posted $2.55 billion in investment and other income in 2010 versus $2.6 billion the year before. ICWI, NEM and Jamaica International Insurance Company (JIIC) all reported a 40 per cent or more drop in investment income.
What's worse however is that insurance companies are reporting that they are being flooded by personal injury claims this year, which industry insiders attribute to an influx of 'ambulance chaser' attorney-at-laws.
"Our claims have been climbing and climbing and climbing, over last year and moreso into this year it has skyrocketed tremedously," said General Accident Insurance's assistant general manager, Angella Reynolds.
"The reason for that is we are getting a lot more personal injury claims," Reynolds explained. "The lawyers are getting a lot more aggressive -- they are in the hospitals etc, it has become big business for them."
Reynolds said the upshot is that loss ratios have increased significantly at General Accident Insurance.
"An injury you would've been paying $200,000 for two years ago is now about $1 million... That has also been impacting on our reinsurance costs," she said.
ICWI's Lalor shared similar sentiments to Reynold's.
"Back in the days when someone got a tap in the back, they'd rub it off, fix the car and everything would be alright. Nowadays, you can't even touch the back of a car without somebody complaining about whiplash," Lalor argued.
JIIC assistant general manager — risk and insurance services — Byron Leslie acknowledged that "An increase in the number of bodily injuries and the costs associated with settling these claims" is a key reason for the change in insurance rates.
"We have been very selective with the changes made. Some clients will see an increase while some may see a reduction," he said.
Reynolds said General Accident Insurance have revisited its third party liability limits and increased its rates in response to the industry challenges.
"Apart from motor premiums increasing, you're going to find sooner than later companies revisiting the limits that they give on these standard covers," she said.