Insurers with indifferent records will have no option but to hike their rates
Car owners in the UAE needn’t expect their insurance premiums to come down … it won’t. And that after a year in which renewals and new contracts have been through sharp increases in premiums. Even if insurers want to offer premiums to win your business, the Emirates Insurance Authority (EIA) will have none of that.
“The EIA has been insistent that insurers underwriting motor have to clean up their books,” said Mustafa Vazayil, who heads the brokerage firm Gargash Insurance. “Specifically, if their claims ratio and projected actuarial loss threaten the solvency of the business, they will be asked to raise premiums. In a worst-case scenario, they will need to recapitalise. The insurers have been read the riot act … they have no choice in the matter.”
For too long, car owners in the UAE have been surfing along on “artificially low” motor rates. Insurers, with only a few exceptions among the international names, have been willing to go along on this ride, under-cutting the competition where possible. This strategy of theirs is built more on hope that not too many accident claims would pile up than on reality.
Since car sales picked up in 2011, low premiums have been a constant feature, which is why when 2017 came around, owners had a terrible jolt at the time of their policy renewals. For full-fledged agency repairs, the premiums would have seen increases of Dh500-Dh1,000 — even much more — from previous years. These were not limited to the expensive models.
“The problem was that earlier rates were set in a “one size, fits all” mould,” said Vazayil. “Scientific underwriting based on driver’s track record, his/her age profile, the model being insured, etc, were given weightage. That wasn’t happening to the desired extent.
“The EIA wants to clean up the books of all insurers, and what they don’t want to see are losses mounting at a few insurers because they stuck with low premiums on key lines. The Authority’s intervention on motor rates is the first step.”
From an auto dealership’s perspective, how will this play out? In recent years, they have offered free one-year insurance and extended warranties as part of their incentives for new car buyers. To keep their costs down, they are putting ample pressure on insurers to come up with rates they deem excessive.
With new car sales way down, the last thing dealerships will want to see is a further firming up of motor premiums next year. Insurers say that given the EIA’s diktats, their flexibility in setting rates is in a tough bind.
Plus, there is also the spectre of VAT creeping up on the industry in a matter of weeks. It is unlikely that dealerships will absorb that cost as well on top of whatever incentive they have on at the moment, such as free insurance for the first year, etc.
There are also risks for dealerships that want insurers to cut down rates. Lowering the premium artificially could affect the intrinsic market value of that vehicle — say, by only paying a premium of Dh5,000 as opposed to the Dh8,000 that a luxury car requires based on its showroom value. That’s exactly what would happen if dealers force insurers to toe their line on premiums.
Car industry sources say that they will continue to offer free insurance guarantees for new car purchases for a year, but that absorbing VAT payments will not be an option.
That, come January, is for the car buyer to come up with.
The gap widens for agency and non-agency repair
If given the option, car owners in the UAE will prefer sticking with agency repair when their insurance renewals come up. But now, some of them are giving this a second thought.
The quoted premiums for agency and non-agency repair has widened significantly in recent months. On the higher side, it could mean paying a premium of Dh1,000-Dh1,500 more for the benefits of a full-fledged agency repair. For cars that are beyond the three-year or five-year warranty cover, the additional premium can be a sizeable one to bear.
For super-premium models, it can prove a significant outgo for the owner. According to Yallacompare, a “fully comprehensive insurance for the Mercedes-Benz G63 AMG, one of the UAE’s favourite super-SUVs, will set buyers back an average of Dh10,225 if agency repair is selected as an add-on. Convertible supercars are even more expensive to insure. With agency repair, fully comprehensive insurance for the Maserati GranCabrio comes in at an average of Dh19,095, while fully comprehensive cover for the Ferrari California costs an average of Dh20,010.”