Time ripe for Named-driver policies

H. Dinakara JAYASINGHE

When we switch on the television, radio or read newspapers or look at both sides of the road in urban areas, we find insurance advertisements. Insurance is the third biggest contributor of the total advertising cost in Sri Lanka. This situation shows the competition and the importance of the industry in the country.

The insurance field is divided into two sectors as general and life. The general insurance contribution is approximately 150% of life insurance contribution in Sri Lanka. General insurance sale is Rs. 31.156 billion while life insurance sale is Rs.20.729 billion in 2007 (Annual Report 2007 - Insurance Board of Sri Lanka). The motor insurance sales contribution plays a significant role among other general insurance sales such as fire, marine and miscellaneous insurance sales.

The motor insurance sales increased from 6 billion to 17 billion (nearly 3 times) in last five years till 2007 while other general insurance sales increased from 8 billion to 14 billion (less than 2 fold during) the same period. The motor insurance contribution to the total general insurance is over 50% in the country. The claim ratio too is moderate when compared with other general insurance products. The motor insurance claim ratio remains within 61% to 65% while total general insurance claim ratio remains within 61% to 71%. This shows the importance in motor insurance sector towards insurance companies and the reason for the competition among them.

Competition in motor insurance sector is not price based, it relies on product features and service levels. Some players have introduced innovative features such as on-site claim settlement and subsequently other competitors too followed with more creative added features into their motor insurance product. This helped the customer to get the best possible product. But is it sufficient as we are in a more customer oriented marketing environment in the world: Still, the basic framework of our motor insurance policy is traditional though it has added features.

For example both reckless drivers and disciplined drivers have to pay same premium for their motor insurance policies. This is unfair for both parties the company and the customer and also there is a significant growth in fraud claims due to the current framework of the policy. Furthermore, customers are loosing their trust towards insurance and on the other hand, recognition and the professionalism of the industry has gone down. One might argue that the sales figures show a different picture than I expressed. Sales figure does not show the reality when we consider the increasing size of the market and the actual need of the customer. This is high time to think about NPD (New Product Development) by insurance companies. In other words, time has come for named-driver policies.

Insurers in many other western and developing countries issue named-driver policies where an insurance policy covers the vehicle which is driven by the driver who is named. The premium is based on age, gender, profession, driver profile, region, claims history and other relevant factors. This is an ideal opportunity for safer drivers as they can get an insurance cover for a comparatively lesser premium. Also, insurance companies can change a higher premium from less safer and reckless drivers. Driving as a profession will be more recognised and safer drivers will be more in demand in the society. That shows some social responsibility should be placed by the insurance industry.

Certainly, there are heavy barriers in Sri Lanka to develop a product like this. The biggest one is, we do not have reliable, sufficient and detailed data required for actuarial analysis and pricing. Also, we do not have reliable industry statistics in Sri Lanka to support differentiated competitive pricing. How to overcome these issues? There should be an interlinked traffic management system.

The police and other relevant authorities must develop and maintain a database to track vehicles and drivers accordingly.

There should be proper ways of accessing the information from the said data base by insurance companies with relevant security techniques. Insurance companies too must pay more attention to share their information with competitors in a cordial manner. It helps all to be more professional and avoid taking the risk blindly.

When considering the individual, is it fair or ethical to charge the same premium for a vehicle used by a marketer who drives recklessly during the busy hours in Colombo and for a vehicle used by a matured lecturer from a rural area who drives carefully most probably on weekends in his less traffic area? Is it fair to charge the same premium from well experienced driver and a driver who took the driving license very recently? The level of risk taken by an insurer of the above mentioned customers differ from person to person.

Some customers are using more than one vehicle while one is used all the time the other is used occasionally. Is it fair to charge for both vehicles?

Launching and generalising named-driver policies into the Sri Lankan market is not an easy task. Developing proper consumer awareness and changing consumer attitudes will be more tougher than developing proper mechanism for the product. But, this product should be available someday to protect the customer and insurer, and to enhance professionalism for the industry. Finally, the entire society will benefit due to lesser number of road accidents.

It proves the contribution towards CSR (Corporate Social Responsibility) from a more marketing oriented entity.