MIXED feelings is how one would describe the reactions from readers on the subject ‘why the insurance industry should consider adjusting premiums’.
There were three interesting and separate developments last week which a strategist would term ‘stuck in the middle.’
Firstly, on this platform I tried to shed light on the need to adjust insurance premiums.
Coincidentally, there was some purported premium adjustment on third insurance by some insurers which the regulator dismissed through a press release I read through this paper.
Another interesting feat of last week was the fact that fuel price, one of the factors I used to build my argument, was marginally reduced.
This development prompted some readers to take me to task why I justified premium adjustment yet fuel was reduced.
Further, listening to the 13:00 hours Radio Phoenix news I heard some friends from the transport sector saying they could not reduce bus fares despite the marginal decrease in fuel prices because among other things insurance has been increased by 100 per cent.
Other readers were asking why the premium adjustment could not be staggered over a period of time rather than at once.
Well, the fuel component is just a small bit of the whole picture.
I think in last week’s article I tried to shed light on the composition of the insurance premium and I will also comment further in answering some questions below.
From the many reactions across stratum I will pick two for today.
“Good arguments as usual from you Webster. However, let insurers follow the due process of the law with regard to premium rating.
Emotional attempts to raise premiums without due regard to legal provisions ends up playing in the hands of insurance companies.
However, my questions to you are as follows:
(1)Does the over 100 per cent increment in premium rates for third party motor insurance justify the claims experience (of course which borders on poor underwriting by some players), business acquisition costs and administration expenses in the market?
Do you have statistics to back this increment? Don’t you think we are exaggerating a bit by blaming everything on macroeconomic variables – I believe market players have some factors within their control and [I] am sure you as a business strategist knows this very well.
(2) What’s your thought on regulating premium rates? Should rating be left to demand and supply forces?” Collins Chibwe.
I would like to thank Mr Chibwe for the contribution.
On the first question my comment for now is to refer him to lastweek’s article in which I addressed the factors that justify premium adjustments.
There are also other technical issues which will be a subject for another day.
On the second question I am not an advocate of regulating insurance premiums because every risk is unique.
However, this freedom is prone to abuse hence for the sake of sanity in the industry I support the practice of having minimum rates/terms.
Please note that, minimum rates/terms mean just that.
This implies that an insurer can charge higher rates than the minimum depending on how they evaluate a risk and this is technically acceptable.
Therefore, what is illegal in my view is charging below minimum rates/terms set by the industry and we should not just restrict ourselves to motor premiums, there are also non-motor classes as well.
The second contribution came from Elias Kanjela and he wrote; “Dear Webster, Happy 2017. I read an article titled as above. It was quite educative and had a lot of valid points. For sure numbers don’t lie as the adage goes. My concern for insurance companies in Zambia has been this ([I] am not sure if you have covered this before and I may have missed it), why do we have to pay premiums forever? Let us look at it this way: You buy a brand new Hilux and start paying comprehensive insurance against this asset. Chances are that these vehicles are so strong, and God forbid an accident, that they can be as great even after 10 years without any claim to the insurance company.
Why can’t insurance firms introduce a total refund of the premiums paid say after five years or part thereof?
I can assure you, everybody will be ready to go for these premiums and will look after their vehicles with extra care as they know five years
from now there will be a pay cheque.
This and many other factors draw away individual insurance of vehicles.
I believe there are some other countries in Africa that are practising the refund kind of insurance. PICZ can be a trend setter!!!
Kind Regards, Elias M. Kanjela
Thanks once more for the contribution from Mr Kanjela. It is a brilliant idea which is worth exploring.
Currently I am aware of No Claims Bonuses (NCB) which are rebates for those who don’t claim in a given year. The NBC is usually 15 per cent for each claims free year until you reach the maximum.
Test your knowledge space
Correct answer to last week’s question is [b]; the information must remain confidential even after the agency has ended. The winner is Jocelyn M Sakala.
Question for this week: Insurance premium is composed of many variables; name three of these variables.
Comments and answers: email@example.com or firstname.lastname@example.org or
on face book search for Insurance Talk-Zambia group or visit my
[The author is a Chartered Insurer with more than 12 years industry experience]