Cedric Stephens | Insurance Helpline | Random thoughts on Shaw’s budget salvo
QUESTION: Motor insurance is compulsory under the Motor Vehicles Insurance (Third-Party Risks) Act MVITPRA. Since its aim is to protect all the victims of road accidents, it should include all expenses that are incurred as result of an accident and not just some. Government should enact additional legislation to ensure that coverage is adequate in all circumstances, even if this results in higher premiums. This would create a situation where insurers would settle claims more fairly and there would be fewer incentives for them to dodge their responsibilities.
INSURANCE HELPLINE: Last Wednesday, I sat down before my computer to read Finance and Public Service Minister Audley Shaw's speech thanks to a very efficient Gordon House PRO that opened the 2017/18 Budget Debate.
I was glad that I read the 34-page document instead of relying on newspaper summaries.
Buried in the speech were titbits of information that confirm the fact that there are imperfections to use an understatement in the operations and regulation of the local financial services industry.
Regular readers will know that I have been on a long crusade to bring some of these matters to public attention. I was very happy to learn that the finance ministry, which oversees banking and non-deposit-taking institution regulators, has recognised the shortcomings. Also, that it has plans to remedy the situation. Kudos are due to the International Monetary Fund, which I suspect is the driving force behind
The disclosure about the $45 billion-plus funds stored in the vaults of commercial banks in supposedly dormant accounts was jaw-dropping. The banks are "rinsing" the monies in those accounts to increase their interest income while, at the same time, are penalising depositors with exorbitant fees for putting those same accounts to sleep.
Whatever little respect that I had for members of the banking industry has disappeared in smoke.
The issues that you raised also fall under the broad heading of flaws in our motor-insurance market. My emphases are, however, different from yours, as you will see below.
Section (6) of the law to which you referred, MVITPRA, gives the minister the power "subject to negative resolution ... to change the amounts specified" for personal injury and property damage. The current minimum limits in MVITPRA are: Property Damage $500,000 any one person or $1 million all claims; and Personal Injury $1 million any one person, $3 million all claims.
I agree with you these limits are scandalously low. They should be at least 10 times higher. Whether the minister uses his power in the way that you have suggested remains to be seen.
Insurers here estimate that between one out of every four to one out of every three vehicles on our roads do not comply with the compulsory motor-vehicle insurance law. In other words, they are uninsured. The high rate of non-compliance causes major problems for innocent victims and the society.
Persons who have the misfortune of being involved in accidents with uninsured motorists end up getting zilch. Two areas of emphasis for me would be to try to reduce the high rate of non-compliance, and at the same time, raise the minimum limits under the law.
It would be very tricky to achieve the right balance between more adequate limits and raising the price of coverage to a level fewer persons could afford.
Reliance on law-enforcement authorities alone will not lead to increased compliance with the law, as the United Kingdom authorities have found out.
The more effective solution would be partnership between law enforcement, insurers, the regulators, the motor-vehicle registry arm of the tax authorities, and the finance ministry. The latter has an important stake in the subject because for every $1,000 of premium that motor insurers fail to collect, the Government loses $165 in consumption tax. Sources say that motor insurers have developed a tool which will soon be deployed by the police to tackle the problem.
The third area of focus for me would be to strengthen existing insurance regulations. The goal would be to make that industry more responsive to the demands of consumers. A more customer-friendly industry would lead to more trust. More trust would create greater demand for insurance products. For example, many persons who buy motor insurance, according to a 2013 UWI study, are "unwilling customers".
While I do not disagree with the stated strategy to make insurance more available to a much wider section of the population by way of a "micro-insurance legislative framework", I believe this is putting the cart before the horse due to the trust issues.
As the minister said in context of the banking industry, the status quo does not "adequately tackle consumer-related issues at the granular level".
Similar comments can also be applied to the insurance industry. I hope that the promised "dedicated financial services consumer protection agency" will soon come to fruition.
- 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.