Insurance companies waiting for the civil liability law

: 2/26/2012
The Insurance Authority is in process of taking practical procedures to control insurance market particularly motor vehicle insurance.
 
The Insurance Authority affirmed that it’s in the process of taken procedures to control the insurance market especially motor vehicle according to the law No (6) of 2007 on Establishment of the Insurance Authority which empowered it to take these procedures to protect interests of the public.
 
H.E Fatima Mohammed Ishaq Al Awadi, Deputy Director General of the Insurance Authority said, “Application of these procedures will be by setting down limit for third party insurance tariff aiming firstly to protect the policyholders and secondly to let the companies to be up to their duties to protect interests of the shareholders at least.
 
The Insurance companies in its turn is eagerly waiting for issuance of the civil liability law on third party insurance- a law which will set down special measures in respect of third party insurance which the insurance companies are claiming that they are incurring losses in AED millions and at the mean time they are paying compensations over 100% of the gross received premiums amounts.
 
The companies said that UAE market though vivid but it needs more new laws and regulations to control its movement and enhance its achievements particularly, motor vehicle insurance which their governing laws go back to the eighties of the last century aside from the hasting changes in the sector and the happenings of the last international financial crisis pushing towards issuance of new laws and legislations to match this phase and setting down measures for the companies and practices conducted in the market in a manner that would secure interests of all parties.

Cautious Companies:

These are certain companies in the sector found themselves cautious about third party insurance especially for those who recently obtained driving licenses or those less than 25 years of age or perhaps some may go further to become firm with certain nationalities and may use other practices-all these affirms the need for further control.

Despite the painful part of motor insurance, some companies intend to expand in it as an important source of liquidity though these companies will suffer severe losses after that in consideration of the huge compensations they will pay over 100% of the premiums value. But, the pains of motor insurance surpass all of these especially, the prices remained unchanged since the beginning of the last century.

Some companies on a belief that motor insurance still one of the types incurring losses to their operations despite the big share of premiums it acquires, as well prices of some insurance never increased since 20 years back and in fact are less than the prices determined by the Ministry of Economy. As a result certain companies incurred great losses in this kind of insurance especially, third party insurance as the price of the policy according to the insurance companies is lesser than the huge amount of compensations paid by these companies whose their suffering are increasing with the increase of the prices of cars, spare parts and labor cost in addition to the huge compensations imposed by Courts for grieve injuries.

H.E Fatima Mohammed Ishaq Al Awadi, Deputy Director General confirmed correctness of the insurance companies opinions in this respect indicating that there are many reasons for some-the most prominent is the faulty pricing policy adopted by management of some insurance companies and lack of internal supervision which should be conducted by the boards of directors over these practices incurring losses to their companies.

Internal Supervision:

Every insurance company normally has an internal supervision committee supposed to review loss rate of each kind of insurance and file its reports to the Board which is supposed to study the subject and direct the company management to apply the technical principles of pricing in line with the company’s strategy and its financial solvency.

Concerning the role of the Insurance Authority in supervising third party insurance market Al Awadi indicated that the Insurance Authority, the government body responsible for supervision of the companies positions, conduct of work in insurance market and protection of the insured is closely monitoring these developments as motor vehicle insurance (civil liability and loss and damage) is subject to certain tariff representing the highest limit the companies are not allowed to exceed. Companies may give prices less than the estimations of the specialists of each company and this for the benefit of the insured. But, the unacceptable is adopting the policy of burning the prices which would lead the companies practicing this policy to face financial difficulties that would affect the rights of the insured.

She said in such cases the Law No (6) of 2007 on Establishment of the Insurance Authority empowers the Insurance Authority to take certain procedures to protect interests of the public and that the Insurance Authority will apply some procedures aiming at enabling the companies avoid financial crisis and the companies’ boards should shoulder their duties to protect the rights of the shareholders at least.

Al-Awadi said, “ Competition between insurance companies is a healthy sign but it may turn to sickening one when it goes beyond the technical and financial basis and principles that governs the parade of the insurance companies indicating that there are several suggestions among them a suggestion to put certain limits on third party insurance tariff. The suitable procedures will be made in the coming period.

Increasing deduction Ratio:

Fareed Lutfi, General Manager of Emirate Insurance Association said, “The nature of the open market in UAE made it difficult to set down certain tariff for this kind of insurance indicating that the solution could be through increasing deduction ratio because of the market circumstances as it may increase or decrease.

But Lutfi assured that despite the market is enhancing the nature of the competition between the companies but existence of more than 60 insurance companies in the market increases furry of competition and stirs the companies to offer prices more lesser than the determined tariff. For information, only 10 companies are acquiring more than 65% of the gross premium amount and the rest are competing in a share not more than 35%- a matter that forces the companies to decrease prices and collect bigger share of the premiums.

He indicated the difficulty of obliging these companies to reduce the size of the motor insurance premiums or even expand it because this basically depends upon each company experience and its ability to meet its liabilities and that nothing in the law prevents from doing so, but the companies are required as well to adopt careful underwriting policy and conduct more jurisprudent studies.

He added that the problem is not limited to UAE but it’s a problem facing many of the world markets; insurance will remain thorny problem needing a lot of work to be done including the customer awareness and his opinion on the insurance.

Prices of motor vehicle insurance are still around 4%-4.5% and they are less by 35% than the tariff determined by the Ministry i.e.-6.5%-a matter need reconsideration of the third party insurance prices which are currently around AED 300-500 in most cases and sometimes more than that.

Law is the solution:

Abdul Zahra Abdullah, General Manager of the National General Insurance Company assured that the causes of the problems of third party insurance go in the first place to absence of the law that set down measures in this respect, indicating that only UAE and two other countries in the area still without Law on this kind of insurance.

He said, “The rules currently in use are directive on compulsory motor vehicle insurance without any legal measures in respect of civil liability.” He assured that a lot of the countries of the world including more than 16 Arab countries have compulsory motor vehicle insurance and that UAE insurance sector is waiting for years for issuance of a law on the compulsory insurance and civil liability which will put an end to many problems facing that kind of insurance including the huge losses the companies are incurring. He added that
such a law would set down minimum level of this liability.

He indicated that setting down a tarrif around 4%-5% will not be sufficient to control the market under the existence of great number of insurance companies in the market and under the fierce competivity in the insurance sector, lack of liquidity and others. The alone is the solution which will set down practical successful measures for the sector.

Premiums not equate risks:

George Ashqar, General Manager of Jet-way International Assurance said, “What is happening in the third party insurance market could be represented in the fact that the premium charged by the insurance companies doesn’t equate the risk borne by the company as the premium in certain times doesn’t increase then AED 500-1000 and this doesn’t equate the risk which would exceed in certain times AED 500,000/- or even more just for one single accident. That is to say, the risk is not limited and accordingly the companies’ losses will continue to occur especially for those companies expanding motor insurance operations. He added that the solution lies in determining in the policy certain limit.

He added that competition between the companies in this kind of insurance (motor vehicle insurance) made the level of service rendered to the clients to deteriorate. The proof is the existence of more than 8000 complaints from the clients against the insurance companies. This means there is a need for further measures to control this market and more supervision even under the notion of the face or open market.

He indicated that though motor vehicle insurance is compulsory and requiring the motor vehicle be insured for thirteen months, what is required in the meantime is to determine liability of the insurance company particularly, in respect of the severe injuries that incur the companies’ huge amounts being paid annually without presence of any measures especially under the prevailing culture about insurance among big segments of the community. He assured the need of increasing awareness in the community and educates it about insurance and people need and liability of each party of the insurance equation.

Underwritten Premiums:

The  Insurance Authority’s figures indicate that the underwritten premiums during the last year for property insurance and liability insurance was AED 17.5 billion and that of motor vehicle insurance reached AED 17.5 billion while the gross compensation of the property insurance and liability insurance before deducting AED 10 billion share of the re-insurers. Retention ratio of the national insurance companies of the underwritten premiums of insurance of property and liability increased by 53%.
 
As for the gross underwritten premium of insurance of persons and fund accumulations preparations, they amounted in 2010 AED 4 billion out of its the share of the national insurance companies was 34.2% and the foreign ones 65.8%. The share of the national companies out of the gross underwritten premiums of the property and liability insurance was 77.8% of the total amount of AED 18 billion while the share of the foreign companies was 22.2%. However, the size of the underwritten premiums of the insurance companies in UAE during the present year is expected to grow by 10% to reach AED 22 billion in 2010.

This good growth came coinciding  with the growth in the underwritten premiums during the last year attained good growth results of 10% between the years 2009-2010, a matter that reflects the great continuous development attained by UAE insurance market.

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