In search of profitable motor insurance portfolios

"Motor insurers must manage their insurance portfolios in a sound, fair and sustainable way without resorting to pricing wars so as to ensure a profitable class of business." This seemed to be the refrain of industry leaders at the inaugural Asian Motor Insurance and Claims Management Conference, held last week in Singapore. 

How do you get insurers to agree when the market conditions do not permit premiums to have a direct correlation to the risk involved.  On the one hand there is a very powerful truck operators lobby which can influence premiums and on the other hand there is very lax traffic enforcement.  The absence of a handshake between traffic enforcement department and insurance companies leave both parties without sufficient data to make informed decisions on how to improve road safety and reduce accidents (reduce claims).

I think this has especially great relevance in India, where any initiative in this direction can have a huge impact, not just for the insurance company, but also for the overall economy itself! It may sound quite strange, but I am saying this more from the perspective of a road-user than that of an insurance company.

The basic premise for this, of course, is that traffic violation data (or rather the regulation of it) will have to be tightly integrated into insurance premium and claims. To start with, we will need to be able to integrate insurance data with traffic violations data. For example, if insurance companies had access to data on traffic violations, it would be possible to increase premiums for such vehicles / people. The stick of huge premiums has been successfully implemented as a deterrent elsewhere in the world, and can hopefully be emulated here too. At the same time, if may be required to offer the carrot to the enforces of traffic regulation, by offering them commissions for formally booking traffic offences so that we get a more realistic picture of the actual violations happening in the country.

It is also by strange coincidence that I came across two companies that were implementing some systems – one for insurance companies that provided data to the traffic police department (in Abu Dhabi) and the other which was implementing a system which would enable traffic regulators to identify vulnerable spots in the city where incidents of accidents were higher. This, I thought, was especially useful information that when integrated with insurance applications would enable the implementation of insurance-on-demand and pay-as-you-drive modes. For example, a vehicle that used a more accident-prone route was more likely to be charged with a higher deductible, as opposed to one who used less congested routes.

A combination of the two solutions would be a potent tool for increasing road safety. While one the one hand, it will likely reduce the number of accidents, on the other will increase revenues for insurance companies. A part of this revenue can actually be allocated to improving road conditions and implementing safety standards.

Unfortunately, in India (perhaps that is the case all over) traffic police departments are a state subject. It will be required to evolve a common standard for transfer of data so that irrespective of the systems being used, it will be possible for traffic departments and motor insurance companies to exchange data. It will probably work best if the regulator (IRDA, in this case) is entrusted with the responsibility of developing a standard for information exchange. This will ensure that both insurance companies and traffic departments can follow a standard method of exchanging data to enhance compliance.

I wonder if there is an existing model anywhere that can be adapted for Indian conditions!