Motor premium adjustments; Affordably real
The reactions that greeted the announcement of the new motor premiums can only be likened to the erratic utility price increases.
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The uproar by stakeholders, including Commercial Drivers’ Unions, was obvious, particularly after they were barely recovering from the new regulations to be enforced by the Driver and Vehicle Licensing Authority.
The announcement
The National Insurance Commission in conjunction with the General Insurance Council recently announced new tariffs (premiums) for annual third-party motor insurance. According to the communiqué, the premium for private cars has been increased from GH¢70 to GH¢471, whiles taxis, ‘trotros’ and motorcycles are now to pay annual premiums of GH¢576, GHC586 and GH¢256 respectively.
Why the leap?
Undoubtedly, the recent economic challenges are the single most important driver of the recent premium increases. Indeed, five years ago, when motor insurance premiums were increased, the cedi was trading at GH¢1.47 to US$1, compared to GH¢4.30 to US$1 currently. Moreover, inflation also doubled from 8.58 per cent in 2010 to 16.8 per cent. With the changes in these economic variables, importers of vehicle parts, for instance, whose operations are largely denominated in USD, adjust prices accordingly, which ultimately increase the value of claims. Besides, road accidents and their attendant liabilities have also assumed unprecedented heights, bloating claims under the third party injury, death and own-damage. The consequences of these challenges, if not checkmated, could put the operations of insurance companies in distress.
Leap justified!
Without prejudice, the new premiums are imperative for improving both the solvency and sustainability of the industry. Currently, the motor insurance portfolio is yielding no profit, while claims in the same portfolio continue to soar, thus threatening the very survival of the industry. Indeed, I recall a couple of years ago, when a claim of a whopping 10 million Ghana cedis (GHC10m) was slapped on one insurance company in favour of one motor accident victim.
Needless to say, but this colossal amount charged on one company could fund a major Government of Ghana (GOG) project. As expected, many a great deal of public excitement greeted this claim, without recourse to how the company could raise such an amount.
The interesting paradox is that while the public appears not to be versed in insurance matters, especially in premium determination and the need to regularly pay the right premiums,quite a number of them are extremely enlightened in making claims they rightfully deserve. Meanwhile, it is serious that someone could spend a whopping GHC20,000 to purchase a fairly used vehicle, but is unwilling to spend GHC1,000 or less to protect that vehicle and others it may cause harm to within a 365-day cycle.
Moreover, there is a mistaken public belief that since insurance premiums are usually pooled, the pool should necessarily be capable of absorbing all claims. While this may have some merit, for the most part, it is not really the case. In fact, it is only possible for the pool to absorb all claims if the public commits to regularly paying realistic premiums for their insurance. In this regard, the new premiums, though exponentially high, will ultimately enhance the capacity of insurers to swiftly attend to claims of property damage, personal injuries and even deaths resulting from accidents.
Public reaction justified?
The public uproar may be justifiable considering the fact that the increment, on the face of it, is astronomical; given the economic downturn and its impact on cost of living. Besides, as a people, we’re often inclined to spend less, but at the same time, demand more for what we have spent.
Commercial vehicle owners, in particular, are concerned about the cascading effects of the premium hikes, which include increasing transport fares. On the positive side, however, the new annual third-party motor insurance premiums may shift the public’s motor insurance preference towards comprehensive insurance, which has extended benefits with in-built third-party components.
Alternative cover and mode of payment
Arguably, the public uproar that greeted the new premiums may have been driven, in part, by the difficulty of policy holders paying the bulk premium at once, in the face of the No Premium No Cover policy.
While awaiting a review of the premiums announced, the good thing though, is the fact that insurers have made provision for a daily insurance cover worth an average of GH¢1.30 a day; thus, providing policy holders an opportunity for short-term motor insurance cover, instead of the usual 12-month long cover.
It is my humble expectation that this alternative will bring greater relief to policy holders, especially owners of commercial vehicles, who roughly make over GHC80 per day.
Conclusion and way forward
Let’s cease fire and dialogue as stakeholders on the way forward. While I also appreciate the consideration by a section of the drivers’ union to establish an insurance company, I daresay they must be minded by the experiences of other unionised business ventures in the country.
I would like to encourage insurers to continue to educate the public on the new policy, despite the initial public uproar. Meanwhile, the public must also be minded that we’re collectively responsible for carnages on our roads, with their attendant huge claims. Moreover, the media reportage on accidents and their damage/fatalities must be extended to the attendant claims in order to provide a balanced picture to the public. Methinks that the media often overly hype supposed negatives of newly introduced/revised policies, without providing adequate details to the public. Going forward, the media must endeavour to provide the public with adequately balanced information on such policies, focusing on both the costs and benefits to the public as well as the sustainability of industry.
Until next week,
“This is insurance from the eyes of my mind”.