Tan Kin Lian's Blog: Guaranteed renewable

Sunday, March 21, 2010

Guaranteed renewable - for motor insurance?

Some insurance contracts are guaranteed renewable. The insurance company has to renew the policy based on its standard rates. The insurance company cannot refuse to renew the insurance, or to charge a higher rate based on the claim record of the individual person. (However, the insurance company can revised its standard rates based on its claims experience, but the same rate must apply to the whole class of policyholders).

This feature is standard for long term health insurance. It is a standard feature of the Medishield or the private Shield in Singapore. I hope that the guaranteed renewable feature can be extended to motor insurance.

At present a motorists may find that after a large accident claim, their insurance premium may be loaded by 50% to 100%, in addition to losing their no-claim bonus. They have to accept these harsh terms, as no other insurance company may accept them. They may suffer this penalty even if they have many years of accident free record.

At present, no insurance company offers this guaranteed renewable feature, even for motorists with good driving records. If you find an insurance company that does offers this feature in the future, it is better to insure with this insurance company even if the premium rate is 10% higher.

Tan Kin Lian

6 comments:

Anonymous said...: Motor Insurance companies are taking advantage of their monopolistic position, because we need the insurance before the vehicle can be driven on the road. Why are motorists being bullied like this?
HSBC decided to increase my premium by a heafty 34.49% despite me NOT making any claims at all - 50% NCD, a 10% AAS member discount, a 5% safe driver discount! I'm now making a lot of noise with them, and if to no effect, will cancelled it.; March 21, 2010 9:40 AM
Anonymous said...: For the past 1-2 yrs, companies raised the motor insurance premiums sharply simply because they were losing money. They found it too difficult to address the root causes, and much simpler to increase the premiums across the board. At the same time, the companies weeded out the "problem" people by imposing much heftier premiums (70% to 100+% increase) for those with claims.
All these actions were taken by all motor insurance companies, to varying degrees, depending on each company's situation.
In 2008, the total motor insurance business lost $214M. In 2009, thanks to increased premiums, it lost a lesser $44.5M. However motor insurance is still the biggest loser among all the general insurance businesses.
Therefore expect another 1-2 yrs of big hikes to motor insurance premiums before the companies will even think about following medishield premium features.; March 21, 2010 10:41 AM
Anonymous said...: Bad claim experience is a convenient and popular excuse to increase premium. Insurance companies can increase those with claims but not those with clean record, right? I beleive the increase is a conspiracy.; March 21, 2010 10:48 AM
symmetrix said...: I'm no acturian but I think the fundamental premises for any insurance biz to be viable is to average out all risks.

There will be ppl who pay a lot in accumulated premiums but claim nothing. There are also ppl who pay just 1 yr worth of premium (eg $1 k) and claim the complete value of a new car (eg $50 k) which gets stolen. It would be grossly unfair for the insurer to charge this claimant $49 k as premium for the flwg yr, just to break even on his claim. Like it or not, there is cross-subsidy in insurance biz, and that is what keeps it going.

I too feel that the amt of premium increase (if any) for non-claimants should be small. The exact amt is debatable.; March 21, 2010 6:49 PM
Anonymous said...: Mr Tan, i wanted to buy life insurance. At e medical checkup i showed abnormal treadmill result-higher bp. can i ask if it is a fair deal if the insurance company offers me e proposal at special terms of 50% more than the original annual premium? I am 26.; March 22, 2010 1:32 AM
sgcarinsurer said...: Its always good to shop around for better deals.... try not to claim insurance if possible esp when the repair cost is minor.; March 22, 2010 2:38 AM