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....