Cedric Stephens, Contributor
I am a 21-year-old guy. I am about to receive motor vehicle for my birthday. Would an insurance company offer me a policy to insure my vehicle and would the premium be high? What other information would I need to know as a young person who is naïve about insurance?
HELPLINE: Naivety, the noun associated with your adjective, naïve, is a word that I have always liked. This is mainly because of the way it sounds néivti, not for what it means.
For those readers - young and old - who may not be familiar with them, the particular word you chose means that you have no experience with motor insurance. Therefore, you are in need of accurate and reliable information.
Another writer, firstname.lastname@example.org, is a mother with a 19-year-old son. She also posed a question which was, in some respects, like yours.
Her son was injured in a motor vehicle collision. The car in which he was travelling was driven by another 19-year-old. The driver had his licence for less than two years.
However, he was not insured by that car's 'comprehensive' motor policy though the vehicle was insured in his mother's name. This situation left mother number one in a self-described state of confusion.
The last time that I wrote about young drivers was in February 2010, 'Young drivers a risky bet: Car insurance pricey and scarce'. Before that, it was February 2007: 'Youngsters and car insurance'.
The first time was in March 2004: 'Motor vehicle insurance basics for first-timers'. Coincidence or not, your question and the other reader's support my theory that questions like yours are asked at least once every three years. Why this frequency, is anybody's guess.
This article will look at five things: (a) the law that governs motor insurance; (b) the structure of the motor insurance market; (c) the products; (d) the age factor; and (e) the financial results of insurers.
DEMAND DRIVEN BY LAW
Motor insurance demand is driven by the Motor Vehicles Insurance (Third-Party) Risks Act. This law, which was enacted nearly 75 years ago, sets up a system to pay persons (third parties) for the injuries that they suffer and/or for the damage that their property sustains in motor vehicle collisions.
The law says that vehicles that operate on the public roads must carry insurance. Persons who break it face prosecution.
Insurers and the policies that they sell must also comply with the law. The legislation, like the Minimum Wage Act, also sets out minimum limits for personal injury and property damage that must be in the insurance contracts.
Motor insurers are supervised by a government regulator, the Financial Services Commission (FSC). They must also comply with The Insurance Act, 2001 and the rules (or regulations) that were made under it.
As at November 15, 2012, according to information on the FSC website, there were 11 companies that were authoriSed to write motor insurance. For all practical purpose in 2013 there are only eight. Three years earlier, there were 11.
Only two, possibly three insurers now, offer coverage for young vehicle owners/drivers. The fewer insurers there are in the marketplace, the less competition there is.
Three kinds of motor policies are available. They are comprehensive; third party (TP); and third party fire and theft (TPF&T).
Many persons, like the 19-year young man's mother, who are unfamiliar with the 75-year-old law, do not understand the word comprehensive. They believe these kinds of policies provide protection against everything.
Actually, they only cover collision damage to the insured vehicle, damage resulting from fire and/or theft, hurricane, earthquake, flood and riot and strikes in addition to the TP liability mentioned in the act.
TP coverage offers liability protection stated in the law. TPF&T covers TP plus fire and theft damage to the insured vehicle.
Comprehensive is the most expensive, followed by TPF&T with TP being the least costly of the three.
Young drivers, defined as persons under 25 years with less than two-three years driving experience, are generally, treated as outcasts, i.e., the same as lepers were treated in biblical times.
THE AGE FACTOR
One out of every four motor accidents according to statistics in 2007 was caused by a driver in the 21-30 age group.
I have no reason to believe that this number has declined because the Government is now actively considering imposing new measures relating to the issuing of licences that will apply to young drivers.
Persons of your gender, according to the same statistics, are at least 10 times more prone to collisions than women of the same age group.
These are probably some of the reasons that most insurers do not like young males like you and the 19-year-old driver referred to before.
MOTOR INSURANCE NOT PROFITABLE
Motor insurance has not been very profitable. Only twice during 2000 to 2011 did the industry record an operating profit.
The Insurance Association of Jamaica Yearbook 2010 says that "investment income has been used to compensate for underwriting losses (and) the process has kept the industry functioning effectively without having to impose substantial increases in premiums". It is very doubtful whether this will continue with JDX 2.0.
The long and the short is that getting coverage for your expected birthday gift will not be easy. I suggest that you find a trusted insurance broker to guide you. Confused mom should seek the advice of an attorney.
Cedric E. Stephens provides independent information and free advice about the management of risks and insurance. Send feedback to email@example.com or SMS/text message to 812-7233.