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Motor insurers rack up J$6b of losses in a decade

Published:Friday | February 24, 2012 | 12:00 AM
Paul Lalor, president of IAJ ... general insurers expect to report a turnaround in motor business for 2011. - File

Marcella Scarlett, Business Reporter

Motor insurance coverage is among the most risky for insurance companies to underwrite, and with the exception of one period in the last decade, has consistently been a loss-maker for general insurers.

In the ten-year period ending 2010, motor insurance has wracked up J$6 billion of underwriting losses. The anomaly in the data was year 2002, when general insurers as a group reported underwriting profit of J$48 million.

President of the Insurance Association of Jamaica, Paul Lalor, says the sector is in line to repeat that year's positive performance for 2011, resulting from increases in premium rates. The numbers will be published next month, he said.

"The industry will be able to report profits in March and we are expecting to make profits this year," said Lalor, who also heads one of the largest general insurers of a dozen in the market, Insurance Company of the West Indies.

"The expectations will be even better this year," he said in his outlook on 2012.

The March numbers, if they reflect a profit, would have ended an eight-year profit drought.

General insurers have consistently improved on the premiums collected from Jamaican drivers, which have risen from J$5.5 billion at the start of the decade to J$12 billion in 2010, reflecting growth of 120 per cent.

The combined total for the decade tops J$85 billion in gross premiums, of which more than two-thirds or J$57 billion flowed back out as payments of motor claims.

Expenses, the cost of doing business, and claims combined have consistently outpaced revenue inflows leading to J$6.38 billion of losses in the decade.

The worst year for the motor insurers was in 2009 when they recorded underwriting losses of J$1.7 billion. That same year claims were at their highest, at J$9 billion.

Lalor said the prevailing high interest rate regime in earlier years was what helped to keep the motor insurance sector afloat. Income was derived from investments in high-yielding Government of Jamaica bonds.

"We were able to underwrite the business at a loss because we were able to make money from investment income," said Lalor.

But: "Since 2010 we cannot; so what you find is that some companies write less premiums, some charge more," he said.

In February 2010, the Jamaican Government successfully executed a debt swap with domestic bondholders that cut average rates by about six points to 12 per cent, and the central bank followed with an aggressive programme of cuts that further pushed interest rates south. The prevailing policy rate is now 6.25 per cent.

Premium increases that year resulted in J$12 billion of revenue for motor insurers, their best intake in any one period.

Lalor said the increasing gross written premiums did not result from more motor vehicles being insured, but rather the upward movement in the price of insurance over the years.

Three years ago, the Island Traffic Authority estimated that there were more than half a million vehicles populating Jamaican roads, but said only 384,000 were operating with fitness certificates.

The insured portion is unknown, but fitness registrations are renewed only if insurance documents are up to date.

"I have not seen a massive increase in the number of vehicles that we insure and it is not that the insurance companies want to be overbearing, but looking at the data you can understand," said Lalor, explaining why premiums continue to rise.

Last year, Lalor said, third-party rates were significantly adjusted, in some cases by up to 20 per cent. Rates are expected to increase again this year, he said.

Additionally, the insurance companies have been loading premiums in an attempt to manage their exposure, targeting vehicles that are high risk for theft and accidents.

Toyota Corolla, Nissan Sunny, Honda Civic and Toyota Hiace are the most risky vehicles, being the top four models stolen.

"You find that they steal the Corolla and use them for taxis, and the Nissan and the Hiace," said Lalor.

The Honda Fit has been placed on its watch list because of increasing theft.

Several insurance companies are now hesitant to quote a premium for Fits, while others are offering only third-party coverage. Several insurers are willing to provide coverage only if the owners install a tracking device or an install an alarm system.

Currently there are 10 general insurers that offer motor coverage: Advantage General, JIIC, ICWI, General Accident, NEM, BCIC, Globe, American Home Assurance, Key Insurance and West Indies Alliance.