The High Court has withdrawn the Motor Insurance Underwriting Guidelines of 2009 issued by the Insurance Regulatory Authority (IRA), thus stopping IRA from setting the industry premium rate for the motor segment.
The guidelines, which were issued by IRA in 2010 on account of underperformance in the sector, pushed upwards the motor private segment premiums from a blanket flat rate of 4.0 percent of the value of the car to a cap of 7.5 percent with a discount of 10.0 percent for each year of no claim to a minimum of 4.5 percent.
Despite the set rate, price undercutting has been ongoing in the insurance industry as a result of cut-throat competition in the business segment leading to losses in the motor class of business. This ruling will allow for insurers to charge premium rates of their own choosing, and with the introduction of the risk-based capital regime, most insurance companies have increased premium rates as they align premiums to be proportionate to the risk being insured.
Anytime there is external interference, such as with quotas, minimum wages or legislations; there is either excess supply or demand, which leads to a deadweight loss in the economy and ineffective allocation of resources.
The court ruling comes at a time when the National Transport and Safety Authority (NTSA) is set to roll out digital driving licenses, while the IRA plans to have underwriters share customer information with Credit Reference Bureaus (CRB) to curb fraud.
On implementation of these changes, insurance firms will be better placed in developing and pricing products in line with each customer’s risk profile, thus increasing the profitability of the segment going forward. We hope that the trend to do away with regulatory or industry set fees will percolate its way into other areas such as legal fees, architectural fees, quantity surveying fees, and other areas that continue to set fee scales.