Aggressive competition in Motor Insurance

QUESTION FROM JOURNALIST
REPLY BY TAN KIN LIAN

I am writing a story based on what the MAS said last month that motor insurers need to maintain underwriting and pricing discipline.

- Is maintainng underwriting and pricing discipline a challenge for the industry?

Reply: Yes. It is a challenge. Some insurers, with a small volume of risks, do not have adequate statistics on their own claims experience. They use the premium rates charged by other insurers and even give a discount. Their premium rates may not be adequate to cover their claims and expenses, especially if they cannot manage the inflated claims. The shortfall can be as much as 30%. They will suffer a loss and will have to increase their premium rates significantly in the future.

- What has NTUC done in this area?

Reply: NTUC Income review our claim experience every six months. We use the claim experiences to revise our premium rates. We are pro-activly in managing inflated claims and can bring down the claims to a lower level, compared to our competitors. We keep our expenses low and add a modest margin. We are generally able to offer the most competitive rates, and still keep to a modest profit.

- What is NTUC's average motor premium today and is it likely to go lower?

Reply: The average premium for private cars today is $807. This is a reduction of 15% compared to the average premium of 1 year ago.

- Why is there strong competition in motor?

Reply: There is strong competition in motor insurance. Several insurers are charging premium rates below their cost of claims and expenses. The difference can be as much as 30%. This is unsustainable and unsound. They will have to revise their premium rates significantly in the future. Their policyholders will be hit.

- What is NTUC's market share in terms of premiums and vehicles?

Reply: Our market share is now about 35%.