Stock Insurance claim
Motor insurance premiums - and claims - continue to drop in the ͵羺, and that's good for car owners. But are insurers taking on major risks by dropping rates to levels last seen in 2017? Image Credit: Shutterstock

Dubai: Motor insurance premiums are dropping for all models, bringing relief for car owners in the ͵羺 but will likely dent prospects of insurers. In actual terms, the decline in premiums represents savings of between Dh300-Dh500 for vehicles costing Dh30,000-Dh40,000, and from Dh800 and over for models priced in the Dh50,000 and over range.

“It was about three years ago that the insurance regulator recommended minimum premium for comprehensive motor insurance policies,” said a senior insurer. “For the better part of last year, nearly all insurers had followed these recommendations – but that’s not the case now.

“There’s little appetite among the majority of car owners to pay what they as “high premiums”. They are taking their business to another insurer who is willing to quote much less.”

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Ditching comprehensive

These days, there is a 3.5-5 per cent difference between what the average premiums were for popular models such as the Toyota Corolla and Honda Accord at the start of the year. According to InsuranceMarket.ae data, an Accord could be insured for around Dh1,050 and a Corolla for just over Dh1,000.

But on premium models, such as the Nissan Patrol or Toyota Landcruiser, the differences between a January premium and one written now could be as wide 10-12 per cent. Of course, depending on the insurer.

For many vehicle owners worried about salary cuts or a job loss lurking around the corner, the only intent is to get the motor policy renewed… at a bare minimum cost. More of them are opting for third-party insurance rather than choose comprehensive. (In simple enough terms, a third-party policy only offers cover for damages caused to another vehicle in an accident with your vehicle.)

But when a third-party policy can be had for about Dh600, the cost savings for the car owner become clear.

According to Avinash Babur, who heads InsuranceMarket.ae, “The current downward trend on motor premiums will remain until the first quarter of 2021 as vehicle density on the roads build up once again. And lead to more accidents… and claims for insurers.

“The COVID-19 sterilisation programme in April restricted movement of vehicles and reduced the overall accidents and claims. This led to a reduction in the premiums by an average of 10-15 per cent. Owners can expect that the post-COVID-19 reduced rates will remain until the end of the year.”

Motor Insurance ͵羺
Pressure on motor premiums is evident from the latest renewal numbers. Will premiums drop further? Image Credit: InsuranceMarket.ae

No quick lift

But many in the industry say that any increase in motor premiums may have to wait longer. “If premiums increase, it will only push more car owners to opt for third-party insurance, and that will have a huge detrimental effect on insurers.

“Instead, they will keep the rates artificially low and hope this will convince owners to stick with comprehensive.”

No help from new car sales

New car sales in the ͵羺 are still down by about 30-40 per cent from last year, and that’s hurting dealerships as well as all those insurance companies heavily dependent on their motor portfolios. In a good year, the ͵羺 car would have about 250,000- to 300,000 new units heading out of showrooms.

“Unless new car sales recover, insurers will not have much maneuver space in raising motor premiums,” said an insurer. “They will be reliant on their current motor portfolio, and to retain those clients they will have to keep dropping rates. I don’t see any increase in motor premiums unless car sales recover.”

Insurers kept the sterilisation program in mind and offering generous discounts at the time of motor policy renewals. Existing policy periods are not being extended, but insurers are giving back two months of premiums in the form of a discount on renewal with the same insurer

- Avinash Babur of InsuranceMarket.ae

Less claims, thankfully

Or if there is a sudden surge in accident related claims. Even then, it could be the second-half of next year before these higher claims payout translates into an increase in premiums.

“The ͵羺 Insurance Authority had revised the overall minimum premiums for third-party liability and comprehensive back in 2016,” said Babur. “Depending on the claims history, insurers are generally able to offer additional discounts of up to 30 per cent - provided the insured had a claims-free experience.”

This year, at least so far, insurers have been shelling out less on accident claims, and that means they can get away with offering lower premiums. But will their luck last?

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Motor related claims dropped right through the first-half of this year, helped, of course, by the sterilization programme to combat the COVID-19 spread. Fewer claims payout on accidents meant insurers could keep dropping their insurance premiums. Image Credit: Gulf News Archive