Quake may rattle insurance premiums

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Mar 18, 2011
Quake may rattle insurance premiums

Global reinsurers, set to be hit by huge claims from Japan disaster, may drive up rates here
By Lorna Tan, Senior Correspondent

PREMIUMS for property-related insurance policies in Singapore - including home, fire, car and various types of business insurance - might all rise as a result of Japan's unfolding disaster.

But the local industry says it is too early to tell just when - and by how much - the premiums could increase.

A key industry body says the reason for possible hikes is that global reinsurers, which effectively offer insurance to insurers, are set to be hit by huge claims from those affected by Japan's disaster.

These reinsurers could well drive up the rates they charge insurers to spread the risk - and this could cascade down to premiums for policies in Singapore, as in other insurance markets.

The warning came from the General Insurance Association of Singapore (GIA) during a briefing yesterday.

Policies likely to be affected are property insurance, which includes fire insurance, home insurance and business interruption insurance. The other major category affected is casualty cover protecting a person or business against legal liability for losses caused by injury to other people or damage to their property.

GIA committee member Terence Tan said premium hikes for these types of insurance are on the cards if global reinsurers - hit by earthquake-related losses - decide to raise their premium rates when they are up for renewal. This means higher premiums for policyholders unless insurers opt to absorb the increases.

'The global reinsurers provide capacity and protection for all insurers... When the cost of capacity increases, the cost of protection will increase. How much is a big question mark,' he said.

Each general insurer strikes a deal on its reinsurance rate on a different date, though some premium rises may occur as early as this year, he said.

When contacted, insurers such as Income, the NTUC insurance cooperative, said it is too early to ascertain the full impact of Japan's disaster on the industry.

That factor aside, the GIA said yesterday that motor premiums, which have been rising as a result of high claims and greater vehicle numbers, are set to keep increasing, though at a more gradual pace.

GIA president Derek Teo blames the rise partly on last year's higher motor underwriting losses - $48.9 million, up from a $44.5 million loss in 2009. The loss came despite motor premiums rising 9 per cent to $1.04 billion, in part due to last year's record 945,829 vehicles.

He said one reason for last year's escalating motor losses was the damage sustained in two major floods. They had led to 428 motor claims, which had translated into an estimated loss of $11.6 million.

A worrying trend highlighted by the GIA was a rise in personal injuries reported especially among young drivers under 25. This group of drivers can expect a higher premium hike upon renewal.

On a positive note for the industry, the motor loss ratio improved to 73.7 per cent last year from 75.3 per cent - so for every dollar of earned premiums, 73.7 cents was paid out in claims last year.

According to the GIA, the average premium rose to $1,100 last year, a rise of 6.5 per cent from 2009 - lower than the 20 per cent rise in 2009 from 2008 which saw a record motor loss of $214 million.

As a whole, the general insurance industry posted robust growth last year, climbing 3.7 per cent to $3.03 billion, boosted by strong economic growth.

The industry's underwriting profits rose 4.4 per cent to $198.1 million while its total incurred loss ratio improved by 0.8 per cent to 57.6 per cent last year.

All classes of businesses, except marine cargo and health insurance, registered premium growth led by a 10 per cent rise in the personal accident class.

Fire insurance was profitable, with 4 per cent growth in earned premiums to $131 million last year. Underwriting profit rose 21 per cent to $62.9 million.

Work injury compensation insurance made a strong turnaround with an underwriting profit of $5 million last year, reversing an underwriting loss of $12.3 million in 2009.

Premium growth in health insurance was flat last year, on the back of a 56 per cent slump in underwriting profit to $4.6 million. The GIA attributed this to the competition among the life and general insurers for health insurance business.


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This reinforces my view that insurance is largely a non-competitive industry (to put it mildly). When the players lose money, they increase premiums. Very few get a pay cut or heads roll for running the business in-efficiently. Surely, their organization can be culpable of mistakes and paying the penalty as well. I just browsed Lloyds. Seems that even they have escaped by passing on their liabilities - court case seems complicated. And I used to think this only applied to Life Insurers.

I don't recall reading about premiums going down when insurers are highly profitable. They just recruit more agents! There is just limited market play. I am quite sure there are regulations that forms barriers to entry - in almost all countries.

Incumbents can slowly suck the cash out of businesses and individuals who are forced/co-erced/encouraged to insure themselves against one risk or other. Insurance - for one reason or other, you must have them! Providers cannot be allowed to fail either as they will cause much suffering not to them but to their customers!

I do not mean that the Japanese people should not be reimbursed for their losses nor hope for their insurers to fail. But it does seem in-equitable especially in the light of the above article's sentiments. It's not hard to understand the insurer's selfish logic to increase premiums for their own pay and profits, but it's hard to accept the logic (even presumptuous) that buyers in a far-away land should be asked to just pay more premiums due to the Japanese earthquake, as if there is no choice, no alternative (choices). To argue that risks have increased is something else but amazingly that is not what the article drives at. So either that, or the reference voices therein do not understand how premiums and risks should be related.

In sharp contrast, I do not see Boustead being able to charge its customers like Continental more because it lost money in Libya. More likely it charged less! Of course, its shareholders lost money, but the insured are not shareholders.

Rant over. Dissenting views?
(18-03-2011, 10:00 AM)mikh Wrote: In sharp contrast, I do not see Boustead being able to charge its customers like Continental more because it lost money in Libya. More likely it charged less! Of course, its shareholders lost money, but the insured are not shareholders.

Haha, you are right about Boustead. It's true about the industry, I feel. Many big players may implicitly collude and agree to bring prices up for all insurance as a result of some major catastrophe. I guess there is no legal way to stop this - I liken this to the oil cartels "setting" prices.

On a lighter note, I guess that's why Buffett is in the Insurance business! Tongue
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