Advisory Column: Male and under-30 – Is the insurance risk overblown?
Can you recommend some insurers who may be willing to insure my 22-year old son at a reasonable cost? He is a full-time student at a tertiary institution, who got his driver's licence four years ago. Since then, he has been driving without an accident. I read in this newspaper that motor insurers have raised premiums for males under 30 years old by 80 per cent. They claim that this is due to the 'frequency and severity' of accidents involving persons in this age group. Call me a 'doubting Thomas', but I believe the article was a public relations (PR) stunt to justify the big increase that insurers are implementing.
- B.S., Kingston 10
INSURANCE HELPLINE: The lead article in the March 2, 2015 issue of this newspaper, headlined 'Reckless Youth', did not qualify for page one treatment. It failed to meet quality standards. The writer simply repeated the words of an official of the insurance lobby. He, or she, did little or no work to check the accuracy or otherwise of the official's assertions, examine the data that was cited or spend time in the archives before 'putting pen to paper' - to use an old-time phrase.
The article referred to two collisions in St Ann and Clarendon in which six persons died. This, presumably, was to support the claim of male recklessness. The ages of two of those persons, young women, were disclosed. There was absolutely nothing to suggest that the drivers in those collisions were males under 30 years of age. If this was a PR job, it was poorly executed.
Insurance rating agency and international information source, A.M. Best Company, said in a recent report: "Caribbean-based general insurers generally operate in markets with limited growth potential. Acquisitions of other insurers or existing blocks of businesses have been the main growth vehicle in recent years. This has led to industry consolidation with fewer market participants."
Even though none of the insurers in Jamaica that write motor insurance are rated by A.M. Best, that company's comments provide a reasonably accurate picture of what has been happening locally.
The number of companies offering motor insurance has declined by nearly 30 per cent during the last 10 years. As at December 31, 2014 there were eight registered motor insurers. In 2005 there were 11.
Consumers have fewer choices when the market for any product or service, like motor insurance, gets smaller and the industry is consistently recording losses.
Local motor insurers are not alone in saying that young, male drivers are more prone to have accidents. The World Health Organization, for example, lists "being a young male" and "having youths driving in the same car" as two of 11 risk factors which influence crash involvement in Unit 2 of one its reports on traffic accidents.
The Independent, a United Kingdom newspaper, in an August 2010 article, reported that "A 55 year-old man with a Ford Focus hatch 2005 and a modest 1.6 engine could see his premiums rocket from an average of £187 (J$32,000) to £1,705 (J$291.767.95) if he wanted to add a 19-year-old son to the policy".
Some UK insurers have raised the minimum age of named drivers to 21 or even 25 and have banned drivers with learner's or provisional licences, altogether.
"The high cost of insurance has led to young drivers putting off attempting to learn - the number of 17- to 21-year-olds with a provisional licence has fallen by almost a third over the past 15 years - while an estimated 300,000, one in four provisional licence holders, drive uninsured," the article said.
Is the 80 per cent premium increase for Jamaican male drivers under 30 years old, like your son, justified? Probably not, according to the March 16, 2015 issue of The Economist.
"Blunt proxies" used by insurers to assess risk, such as "age, sex and marital status, for example, assume that all young, single, male drivers are reckless ... and that middle-aged, married, female ones are cautious is often inaccurate ... (and) involves unfair cross-subsidies: prudent and responsible young men help to pay for lead-footed mums."
Data and technology, the same article said, "are starting to up-end the insurance business" in places like North America, Europe and Africa.
"Drivers buying insurance from an American insurer, get a choice; they can either supply a few bits of information about themselves and receive a quote based on the behaviour of similar people, or they can install a small gadget in their car. The device monitors their driving and adjusts the rate they pay, accordingly. Those who refrain from braking sharply and stay off the roads at night can earn a discount of as much as 30% on the generic premium. For those who drive relatively little, another insurer, based in San Francisco, simply charges by the mile."
Given the current structure of the local market and the apparent reluctance of insurers to use recent advances in data and technology to assess risks and influence consumer behaviour - the latter was deemed important by the Insurance Association of Jamaica - you will have no other choice to but to swallow the premium increase, no matter how painful, even though your son does not appear to be a bad risk.
n Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: email@example.com.