Whose Fault Is It for Rising Auto Insurance in Singapore Anyway?

I have recently been very troubled with the justifications given by the auto insurance providers in Singapore in support of their need to increase insurance premiums in Singapore. However, sad to say, few people have questioned these companies on the issue of whether they are truthful in their justifications. The reality then is that we, as the consumers and within a captive market, are left to foot the bill with regards to the rising cost.

In Singapore, there are generally not as many choices for insurance as in many of the countries that I have lived in. Generally, there are 3 big players with several smaller peripheral players. However, the bulk of the cars are insured by one of these 3 auto insurance companies. Recently though, there have been a spate of discourse by the auto insurance companies rallying for an increase in auto insurance premiums with some having increased premiums by 20% already. The justification: Rising cost of auto insurance claims in the past few years with more having been paid out to claimants resulting in a loss for their business.

I am rather puzzled by this claim from the auto insurance companies because of several factors.

1. Auto insurance premiums are based on risk factoring before they are released to the public. Such companies employ teams of actuaries and underwriters who study what the risk factors are from a statistical view point before determining the premium. What this means is that (from a layman's perspective) the auto insurance providers have already considered the probability that a claim would be made against you before they quote you a price. Insurance premiums are determined on this risk basis and not on some arbitrary number plucked from the air. This, then leads me to wonder if we are paying for losses in other portfolios as auto insurance makes up the largest portfolio and largest captive market.
2. The average speed of travel for a vehicle is about 50-60km/h in Singapore with highway speeds averaging only about 90-110km/h. The majority of Singapore roads are urban streets with a minority of highways. Even at rush hour, the speeds can drop to 40-60km/h on crowded highways and this is usually the time that an accident occurs due to the bumper to bumper traffic.

The above 2 factors got me thinking about the justifications by the auto insurance companies that they were paying more in claims for injuries and property damage. Let me explain why.

The first reason why I am curious about the justifications is that auto insurance companies employ actuaries and underwriters to determine the risk factoring for premiums. These people are suppossedly specialists who are able to determine what the risks involved are for a profile of drivers before determining what the premium is. Again, the emphasis is on the word SPECIALISTs. This group of people look at, on a day to day basis, and calculate what the probability of you and I are to make a claim. With this in mind, does it now mean that the teams of actuaries are not doing their job or are incompetent at their work because they were not able to factor the risk properly? This argument somewhat does not make sense because the data is reviewed yearly and assessed yearly. Based on this then, would it mean that the claims had spiked in a short period of time and therebyresulting in a need to increase premiums? Again, I am puzzled.

Alternatively, the auto insurance providers can also claim that they had not increased premiums in spite of rising claims for several years in order to remain competitive in the market. Wait a minute, again, this argument confuses me. The reason is that all companies are in the market to make a profit and the decisions are based on commercial decisions. Therefore, no company would undertake a commercial transaction (regardless of how lucrative) if it were not profitable or made business sense for the company. This takes into consideration, as well, what the market forces are. It would be ludicrous to think that auto insurance companies would continue for so many years if they were losing money all along. If we were to follow this logic, it would mean that the commercial acumen within many of these major companies were minimal. The result of this argument would lead me to think that maybe we are making up for losses in other portfolios.

The second reason relates to the kinds of injury claims. With most of the accidents occuring at rather low speeds, how then can property and injury claims be rising? My use of the term "low speed" is actually taken from the auto insurance providers' north american counterparts who used to claim that minimal injuries will occur in collisions below 50km/h (I know because I had been a litigation lawyer in North American with experience in dealing with numerous claims as both a plaintiff and defence lawyer). With this in mind and the speed of traffic in Singapore, how then can there be rising injury claims? The only claims then would be property and this would lead me us back to my previous section, i.e., hasn't the cost of repairing the car been factored into the premium by the teams of actuaries employed by the auto insurance companies? The argument then that maybe there are more luxury cars in Singapore contributes to the rising claims as it cost more to repair a continental import than an Asian import. Again, I would refer all to my discussion on the acutuaries and risk factoring.

Ahh...then you say, there have actually been rising claims from injuries and property damage. OK then, let's take a look. Some of the auto insurance companies had actually put the blame on the lawyers for such increases saying that lawyers had contributed by inflating claims. Good argument but I would beg to differ. Claims are first and foremost submitted through to adjusters at the insurance companies. These adjusters then determine the quantum and the true probability of the injury resulting from the accident; they scrutinize loads of documents from property assessments to doctor's medical reports. After which, they determine what the value of the claim is and submits to the auto insurer. Does this sequence seem familiar (like the relationship between the actuaries and the company)? The insurer then determines if they want to pay the claim; if they view the claim as fraudulent and believe they have a good legal argument, only then does litigation begin. Singapore courts though, unlike US courts, are not as liberal in awarding million dollar awards for damages. With this in mind then, is the insurer trying to tell us again that someone they hired (i.e. the adjuster) is not doing their job?

The arguments put forth to date are reminiscent of the arguments put forth after the September 11 incident in the US where the insurance companies lost money after paying the claims for the terrorist attacks. In order to recoup losses, they put forth the argument that accident claims were rising and so they had to increase premiums. This increase affected people throughout North America including in Canada. However, in all their arguments, no insurance company was willing to open their books to the public for us to scrutinize their numbers despite numerous calls from watchdog associations and lawyers; the word from the insurers then was that it was confidential. With the current economic situation, it leads me to wonder if the insurers are facing the same problem because of losses made in their investment portfolios as we are all aware that insurance premiums are reinvested to generate income for the insurers? As such, are we making up for a loss somewhere and auto insurance is the easiest to target?

I am truly baffled by these events. However, the driving population in Singapore has not come forth to question these practices by the auto insurers but have instead accepted such increases. I believe that it would be interesting if we could ask these insurers to open up their books and be transparent to us, the consumers, with regards to whether actual claims are on the increase or that we are making up for losses in other areas (as we know, the insurance industry has been hit by the recession). I know that my voice alone cannot change much but I feel that I should share with all what my thoughts are on the issue of rising insurance premiums because I am also a driver. Maybe we, as drivers, are paying for the greed and mistakes of comapnies who do not even know who we are. Rising insurance premiums has got me thinking....

Pursue what you love

To do something well you have to like it. But it's difficult just to tell people that and definitely tough for people to understand. Doing what you love is complicated.

After school graduation, the prospect of an actual job was on the horizon. By the time we reach an age to think about what we like to do, most of us would have been thoroughly misled about the idea of loving one's work.

What we should not do, I think, is worry about the opinion of anyone beyond our friends. We shouldn't worry about prestige. Prestige is the opinion of the rest of the world. This is easy advice to give but it's hard to follow, especially when we're young. Prestige is like a powerful magnet that warps even your beliefs about what you enjoy. It causes you to work not on what you like, but what you'd like to like. what I mean is, if you do anything well enough, you can make it prestigious.

The other factor leading people astray is money. Money by itself is not dangerous. The danger is when money is combined with prestige. A well paid job is tempting to someone young, who hasn't thought much about what they really like.

I was in these cab the other day and these cheery cab driver told me I was his first customer. Later he told me that he had just left an airline industry after working there for 40 years! He goes on to say that he had endured the good and the bad times while working there. And he said something that I will always remember. "Don't be greedy". Just this three simple words which has a deeper meaning to life that people always forget.

Whether people love what they do is whether they'd do it even if they weren't paid for it—even if they had to work at another job to make a living.

Of course "not everyone can do work they love" are too true, however. One has to make a living, and it's hard to get paid for doing work you love. As everyone thinks they want financial security, the happiest people are not those who have it, but those who like what they do.

Someone working in an IT industry which manufactures luxury gadgets told me, "I don't like what am doing, selling 'toys' to rich people.. I wanted to go into the pharmaceutical companies doing things where I know I am helping people regardless of their status." He smiled.

Whichever path we choose, expect a struggle. Finding work we love is never easy. Even if you succeed, it's rare to be free to work on what you want till your thirties or forties. If you know you can love your work, you're more likely to arrive at your destination.

If you want to stay happy, you have to do something.

The Economy

Asia is beginning to see the effects of a sluggish economy and the effects of a contracting financial market. The beginnings of the economic crisis began with the American banks and the US economy exhibiting signs of trouble. This was followed by the effects trickling to the European markets. However, Asia had been quite well sheltered from the effects until now. This, though, is not to say that the effects were not felt earlier but it was probably related to the media in Asia which can sometimes be less liberal than western media in order to prevent panic within the Asian community. In spite of the best efforts to put a good twist to the situation, the effects right now in Asia is very real and this is not merely in the financial industry.

As we flip the papers daily, in countries like Singapore, Malaysia and China (3 relatively robust economies that have encountered good growth results in the past years), we are beginning to see the effects of the sluggish global economy. The effects in Singapore, for example, were not really felt until the beginning of this year. In addition, in December 2008, the biggest layoff of employess were from a local bank and this seemed isolated as an incident. During the holiday season in December 2008 though, many were still not believing how rampant the problem would become. For example, I looked around me during that season and still saw widespread buying of big ticket items, luxury items and bookings for holidays. However, how things have changed in a short period.

Today, as I walk through usually crowded traditional shopping areas, I am beginning to see a reduction of shoppers as well as read of shops having problems as consumers have dwindled. In addition, as we flip the papers daily, we hear of layoffs now from the manufacturing industry with companies trying to monitor costs and make ends meet as a result of the reduction in consumption; cranes at the ports are also up in their resting positions instead of down unloading ships due to the reduced exports coming through. The effects are trickling through all industries as a result of the contraction.

Why am I writing the above? The reason is not to look at it as doom and gloom as many analysts have viewed it but rather, to offer a different analysis on the problem. I realize as I read many of the analysts, they seem to be using the traditional "year on year" analysis; even companies use such an analysis to see how they are doing compared to the previous year. This method of analysis is relevant if there were no problems in the economy and we are not in severe contraction. The result of this method of analysis though results in a flawed result. Let me explain why below.

Let's take a quick look at a "year on year" (yoy) analysis. This method of analysis bases the baseline number on the previous year's results. Analysts look at the results and draw a percentage change from the previous year at the same time. This is the basis of the yoy analysis and this is where I feel a problem can occur. The problem now is that we are in a recession which basically means that the economy is shrinking and all numbers WILL ultimately go down. Compared with the previous year, we would definitely see a significant drop so what else is new. As such, we see many analysts reporting doom and gloom in their forecasts but the reality of this is how is knowing that the economy is shrinking and the company/country's figures are down; we all know this issue already and how does this help us plan our way out of the problem. Overall, we know the problem and we are looking for a solution. As many have said, this is a major economic crisis and unconventional times call for unconventional solutions.

From a layman's perspective (I am no economist but merely a business owner), I would like to put forth a new outlook to all. The first thing that I am suggesting is to change the basis of what we are using to compare our performance. I, for one, am looking at perhaps what was the root cause of this crisis, i.e. why are we in this situation. I am looking at perhaps the US economy and credit crunch as the main cause as the banks over there were the first to experience problems which in turn, resulted in other global banks experiencing problems. Due to this, I have begun looking towards them as a base for looking at things. For example, the housing market doubled in value between 1994 to 2002 and beyond (until recently). Many homeowners were elated by the new found "wealth" in their properties. I shall explain why I put "wealth" in inverted commas in a bit. Another factor, home mortgage interest rates droped from 8% p.a. to 3-4% p.a.

Now, is the picture becoming clearer regarding why I put "wealth" in inverted commas? Let me explain. The "waelth" experienced by many was merely a paper gain as opposed to real wealth. Many of us understand that Economics 101 does not regard a mere paper gain as creation of wealth; wealth equates to liquidity and actual cash being created i.e. a true expansion of the economy. The result of dropping interest rates merely changed the demand and supply curve without creating real wealth. Take a close look at the following. If I had a home that was purchased at $86,000 but was revalued at $150,000 when interest rates halfed, did I really make a gain or was the gain the result of inflationary factors? I would suggest that the gain was not really there no wealth was created because the drop in interest rate merely means people were not able to borrow more with no increase in the actual size of the economy; we merely moved the numbers by the same factor that interest rates had dropped. However, many were unaware of this factor and they went out to borrow against their new found "wealth"; banks as well fell into the trap of their greed and lent on paper gains. The result of this exercise, collapse of an economy that was unable to support the growth as there was no wealth created to begin with; the wealth was all only on paper.

With the above analysis in mind, let me make a few suggestions for analysts and companies even though I am no economist.

1. Stop looking merely at yoy analysis as your basis for planning and forecasting. The answer is very simple regardless of what numbers you want to throw in; your company/country's performance will contract and show a drop and this is a given. In addition, telling everyone that the performance is down 20% from last year doesn't help you set a solution or strategy because you were in a boom time the previous year that was built on artificial wealth (paper gains). To ask your employees or population to achieve the previous year's figures just do not make sense because next year the numbers may show a mere gain of say 5% and the same analysts would say we are recovering because there is growth (if we are down this year and it is the basis, any increase next year would show a gain which is flawed logic).
2. Start thinking through the actual problem itself. People are tired of all the doom and gloom analysis as well as news of how bad the economy is. What people are looking for is a solution because any person off the street can now give you the same doom and gloom forecast without needing an economics background!
3. Think out of the box and stop pretending that you have a solution. In such unconventional times, unconventional solutions are required. As I showed in the above, pick a different basis for your analysis. For example, use figures from the mid 1990s as your baseline before the artificial wealth were created as this may be the true size of the global economy even up to now; there has been no real wealth created in the last 10 years and using that baseline may be a better indicator. By using this basis as your indication, companies may be better equiped to devise a recovery plan because you are looking at true wealth (i.e. money available) rather than artificially created wealth.

Many readers may discount what I have said above but I truly do believe that we have all erred in our analysis. I have merely offered the above as a suggestion and by no means put forth that my analysis is correct (as I am not an economist). I am merely putting forth the above as a way to look at the current issue because I, for one, am becoming tired of the doom and gloom news but I am looking at creating a solution; I manage a company and I am going to look for a solution to save my company instead of merely regurgitating the negative because anyone can join the masses is telling what the problem is but few will take the time to look for a solution. I am going to look for the solution instead of contributing to the problem; I hope all of you will join me.

Delay in Paying Salary

Recently, some of my friends told me they have not received their salary or got their pay delayed. The question is what can you do about it.

When we join a company there is a contract made between the employee and the company. The payment days for salary is stated and is therefore binding. We work for that employer for our salary. If we do not work then the employer would, quite rightly withhold or stop the pay. Employer to delay payment is a breech of the contract. However, there can be all sorts of reasons that the pay are late. If it is only a day or so then try to live with it. If it is a week, we must make him aware of his obligation. Do take note, when an employer starts to delay payment in this way it is a symptom of cash flow problem. Then this is a good time to start looking around for another job.

In this crisis, companies shut down warehouses/ factories and even suffer heavy losses, but employers still have to pay his employees salary. Company should not hold staffs' salary as staff morale will be greatly affected and company need employees to generate income. However, sometimes, if due to bad business, company would have no choice - employees will have to prepare for the worst.

One person I know did not receive his pay and he lodged a complaint to the MOM. However, MOM took a long time to act on the case. Eventually, he brought the matter to the Minister of Manpower and the progress sped up. After receiving his salary, he also lodged a complaint to the CPF board as the company did not contribute to his CPF after he received his salary.

"On December 30 last year, the PRC work permit holders approached the ministry for assistance over their employment disputes with their employers.
The key issues involved salary disputes from September to November 2008, and unhappiness with employers for attempting to revise certain employment terms.
MOM has advised workers who have disputes or grievances with their employers to report the matter to the ministry and allow the matter to be mediated or adjudicated in the Labour Court.
The ministry and the police would not hesitate to take firm action if any laws are violated."

The spokesman for the construction company replied by cautioning, ‘Workers going on strike as they did today is illegal. This is a regular salary dispute.’

Did he understand the seriousness of this or did he thinks the Ministry and Police will definitely protect the company if things get nasty, that's why they can ignored the workers' pleaded?