Monday, July 26, 2010

Efforts to control motor insurance claims

Three years ago, the General Insurance Association, representing the general insurance companies, announced several measures under the the Motor Claims Framework, as an attempt to control claims. I felt at that time that the measures were not practical and did not address the root of the problem. The regulator gave its support for the framework. The insurance leaders proclaimed that the measures would be effective in controlling the fraudulent claims and lower the insurance premiums.

It was a pipe dream. The measures actually caused the claims to escalate badly. The premium rates increased by 30% during the next two years. There is a big difference between declaration of intent and producing the actual results.

Two years later, the Consumer Association (CASE)  formed a joint task force with the insurance association. They approached the problem more holistically. The task force was lead by the president of CASE who was supposed to have the political clout. The joint task force identified the problems and recommended the remedial actions. This time round, it appeared that the measures would be more effective.

I read a news report recently, quoting the president of CASE, that seemed to hint of slow progress in stopping the escalation of claims. Are the measures recommended by the joint task force ineffective?

Over the years, we hear of countless cases of fraudulent motor claims involving aggravated damages, inflated repair bills, and claims for non-existent injuries. Complaints about fraud were not acted by the police. The insurance companies were supposed to deal with the fraud by rejecting the claims,  but they need evidence to justify their rejection.  With time, the insurance companies found that it was easier to pay off the fraudulent claims rather than to incur the expense of investigating these claims.

 Fraud has to be controlled by legislation and enforcement. It cannot be handled by expensive litigation through the courts. The parties that benefited from this unsatisfactory state of affairs are the lawyers, who have the opportunity to earn large fees from litigation work. Someone pointed out that a few members of our parliament or their immediate family members are involved in law firms. Could this be a reason for their reluctance to address this issue of public interest?

In the absence of effective action, the consumers have to pay the price through higher insurance premuims.

Tan Kin Lian


rex said...

Rex comments as follows,

I just heard on the news that car insurance will go up drastically because of the floods claims and the insurers are no doubt reacting the govt's official position now that floods will be a common occurence and Act of God and no engineering can resolve. (like it or not).

So Mr Tan your article thread has not much meaning, the high increase in costs to cover floods, will make these small steps taken as highlight in your article, rather meaningless.

One step forward 5 steps backwards.

By the way, i wonder if consumers can opt out of "flood cover" car insurance? That means, i want to take the risk on myself, if car is flooded i pay for repairs myself. Then i can still get old insurance rates. How ah?


Lye Khuen Way said...

I remembered years back when there was a "Traffic Police" section at Maxwell Road and ALL traffic accidents need reporting, the Insurance premiums were not so sky high.
Then some Productivity guru came up with "Core Business" / "Out-source", and Singapore evolved, especially in the Public Sector...
Wonder if the cost saved by the Home Team is more than ALL the extra Premiums being paid. Anyone care to hazard a guess ?

Anyway, there are some intangible benefits that a Man-in-Blue do inspire, but this is lost to & un-appreciated by our Authority. Sad, I would rather pay higher Road Tax minus that ridiculus Radio License, than have my Insurance Premium raised due to fradulent cliams.

Tan Kin Lian said...

Reply to Rex
I believe that the fraudlent claims are many times of the flood claims. the flood claims may have high profile, but the fraudulent claims happen every day and by the scores.

rex said...

Rex comments as follows,

Even though the fraudulent claims are happenign frequently, i think the increase in insurance premiums is not as high as the intended amount of increase announced on the news last night specifically due to address potential flood claims. I was shocked to hear such a large jump. Perhaps insurance companies are taking advantage to increase their profits. The govt's defeatist, give-up attitude to floods, if anything, is fuelling the insurers desire to make more money.

Whereas the current fraudulent claims jacking up the whole industry premiums is something which i could hardly do anything about to reduce my risks, floods are different: Suppose I am an occasional driver (e.g, red plate car) and I rarely drive or go to flood prone area or drive in heavy rain, or have a condo basement carpark. Why should i suffer increase in premiums, if i decided to take my own risks of my own car being flooded.

So i hope that insurers can allow drivers to opt-out of flood coverage. Do you think this is possible?


AC said...

While fraudulent claims is one issue to tackle, my recent experience also showed that the workshops (those appointed by insurance companies) themselves do contribute to the problem.

I had a unfortuante accident where I knocked someone's car at the back bumper, resulting in a small dent. Initially we agreed to settle between us as the repair cost was only $350 obtained from the first workshop. To get another quotation, we sent the car to another approved workshop (probably Singapore's biggest). That's where the problem got worse. The technician examining the car started to give ideas to the owner that he should also check this and that. Total bill quoted escalated to about $1,800. The technician said if it was third party claim, it's standard practice to replace (not repair) all parts, including the back signalling alarm which was still working fine. He said from his experience, most of the time the claim would be approved. After hearing what the technician said, the owner insisted that all the parts must be replaced by brand new ones, including the back signal alarm because he thinks the alarm may fail down the road. I found his demand was unreasonable and I refused to settle and leave it to him to claim. I just checked with the insurance company and the case is still open even though the repair was done more than 2 months ago and the insurance company put a reserved repair cost at $5000. I find the whole saga ridiculous but I am powerless. The system allows such things to happen.

What frustrates me was how could an amount of $350 be escalated to $5000 ?

One possible solution for consideration : Insurance company should approve only the lowest of 3 quotes.

While we want to tackle the fraudulent issue, we should find ways for workshops to play their part.

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