Cedric Stephens Question: My insurers refused to renew my policy this year. They said I was a "bad risk." None of the other companies I called wanted to cover my car. They told me to go back to the company that had insured me for six years. My original insurers took me back with a 150 per cent premium surcharge. They also said that I should take a course in defensive driving. I believe that I have been unfairly treated. What, if any, options do I have?
- J.T.H., Portmore, St. Catherine.
Answer: Your problem shows that all is not well in the local insurance market. It is an example of what economists call market failure. Motor insurance is compulsory. Yet consumers like you, "above average risks [?]" find themselves between a rock and a hard place. Seemingly, the market provides you with only three options.
Obey the law and pay excessive premiums.
Sell your car and rely on public transportation.
Disobey the law and drive without insurance.
So much for the gospel of the market!
"The inherent difficulty in establishing certain markets for insurance," according to Nobel Laureate in economics, Kenneth Arrow, is "one of the strongest criticisms of a system of freely competitive markets." Local lawmakers should ponder these words very carefully as they continue the process of revamping the regulatory climate in which the industry operates.
Your experience provides clear evidence that the local market seems unable to cater to at least one group of consumers.
You are being punished for the actions of those, who in the main, did not play by the rules. You got "the shaft" because you adhered to rules. You have been found guilty. Five persons hit your car during a three-year period.
They were at fault. You reported these accidents to your insurers as your policy requires. For this reason you are called a "bad risk."
Other insurers refused to cover you as a result. You are forced to return to insurers who discarded you. They demanded a 150 per cent surcharge. You are also told to take a course in defensive driving at your expense.
Lower than the angels
The actions of your insurers are defensible they will say. You fall in a group that is "lower than the angels." This class of persons does not match their preferred risk profile. You have been involved in too many accidents. The fact that five of them are clearly not your fault and the other is debatable is not the point.
It is all about dollars. The cost of your accidents amount to $113,000. Plain and simple, you are a "high" risk. Premiums are based on the "average" risks. While some of these arguments are true, in my opinion, your punishment is out of all proportion with your "crime" of playing by the rules.
Your record shows that between 86 to 89 cents of every dollar paid in claims was due to the fault of other persons.
Another 7.5 cents was due to the breakage of your windscreen. Between 3.5 and 6.5 cents (at worse) may have been as a result of your negligence. When the first group of claims is examined your insurers lost $42,000 on one accident.
The third party was insured with VCI Insurance and, because it went bust your insurers were unable to recover. In the second accident, the third party was insured. He ran a red light and damaged your car. However, he breached his policy by operating his vehicle as a taxi. This accident had several unusual features.
The same company insured you and the third party. Your insurer ended up saving money under the other person's policy and paying out under yours. Most ironic of all, because they settled the claim under your policy you, the innocent victim, are paying for that claim!
The record also indicates that in only one of the six accidents was there any hint that you may have been to blame. In the case of the damage to the windscreen these claims are so infrequent they have no effect on no-claims discounts.
In another instance, the third party paid to have your car fixed. There was no claim under your policy. I wonder what type of analysis or reasoning has informed the decision to term you a bad risk and impose severe conditions for insuring you. Didn't someone ask the question whether the company's actions, based on the available information, was fair?
I would suggest that you forget about comprehensive insurance. Assume some of the risks yourself. Look at third party or third party fire theft coverage, assuming that you do not have a loan on the vehicle. The "market solution" you have been offered makes no sense whatsoever.
Cedric E. Stephens is the founder of INSURANCE HELP-LINE, a telephone-based advisory service, and the co-host of Risky Business, a radio programme that deals with risks and insurance. If you need free advice write to The Financial Editor or Mr. Stephens at aegis@cwjamaica.com.
