Now Singapore drivers are a varied and diverse bunch but there is one thing that most of us unanimously hate - increasing motor vehicle insurance premiums! And (no surprises here ) I think I have the solution to put an end to unjustified insurance claims, or at the very least reduce the amount of complaints from drivers. Motor insurers, I sure hope you are reading this!
The major problem, as I see it, with motor insurance, is a lack of transparency. We have no idea how our premiums are determined and how any increments are determined. With such lack of transparency, is it any wonder that most of us will react to any premium increase as an opportunistic attempt to earn more profits?
Ever been to a restaurant and received one entire bill with no break-down telling you which dishes cost you how much money? Ever received a mobile phone bill that just stated the amount payable with no break down of how much was incurred on calls, sms-es etc? I really doubt it. Yet, when we receive our insurance renewal quotes, we essentially get one figure and our no claims discount (if any). Of course we would be pretty upset if the quote is much higher than the previous year's. Assuming that he/she had not been involved in any accidents, any rational driver would assume that their insurance premiums would get cheaper over the years because:
1) The value insured is less now that the vehicle's market value has depreciated over another year.
2) They have established one more year of safe driving records and hence proved less risky to insure.
3) And, not forgetting an increase in the NCD.
To deal with this, I propose a premium system that breaks down the insurance premium into several components, each of which must be clearly detailed in any insurance quote. Let me illustrate how this system would work.
1) The insurers determine a basic rate that covers the average administration costs of a motor insurance policy for an accident-free driver. This rate should be largely the same for everyone, barring some differences based on vehicle categories such as bikes, cars and goods vehicles.
2) Add on a component to account for the value of the vehicle insured. I am no acturial scientist, so I will leave it to the experts that the insurers or GIA hire to determine the formula for calculating how to translate the value into a premium.
3) Add on or subtract a component based on the risk profile of the individual driver - here is where things like gender, age and any other individual attributes insurers deem important are factored into the premium. As a general rule, a driver profiled as safe should receive a deduction, while a driver profiled as unsafe would receive an addition to the premium. Accident track records should also be included here.
4) Finally, add on or subtract a component based on the individual vehicle. It is common knowledge that insurers do not look too kindly on sports cars or cars bearing certain brand badges. Here is where the insurer can factor in this component. Drive a 2 door, turbo-charged sports convertible? Pay $X more. Drive a slow, sedate uncle-mobile? Deduct $X from your premium.
Through this entire process, the final figure will be arrived at. Of course, the insurers may not use the exact same components that I have used. After all, they do pay their risk analysts large salaries and they should arguably be able to come up with a better break down of the premium. What is more critical is that they OUGHT to adopt a roughly similar system and that they MUST include the break down in every quotation.
This is a win-win system for both insurers and drivers. For the insurers, the benefit is clear. They reduce the amount of griping from drivers and the bad press they receive every time motor insurance premiums are discussed. More importantly, it becomes much easier to convince drivers of a need to increase the premium by pointing to the exact component that underwent an increase rather than pointing to the fact they lost money. With a clear break down, I am sure they will also be better able to target the errant drivers while not penalizing the safe ones.
As for us drivers, we also receive benefits. For one, looking at the premium, we can best adjust our habits and lifestyles to reduce our premiums rather than simply passively accepting increments. If the component based on the vehicle is high, we may perhaps think of changing cars. If on the other hand, it is because of the value of the car, we may opt for a downgrade. With this system, we can take on an active role, where possible, to try and reduce our premiums. When purchasing cars and obtaining insurance quotes, we can now make better informed choices.
Doesn't this seem much better than what we currently have in place? Once again, motor insurers, I hope you are reading this!