Regulation of Motor Insurance

Assoc Prof Fatimah Lateef asked the Deputy Prime Minister and Minister for Finance if there can be a review and some form of regulation of motor insurance.

Page: 634

Mr Tharman Shanmugaratnam: I understand Assoc Prof Fatimah Lateef is concerned about variations in motor insurance premiums offered by different companies.

The key issue is whether the premiums are being set in a competitive market that offers consumers ample choice. Motor insurance premiums in Singapore are not controlled and determined by the authorities. More than 20 insurers compete to provide motor insurance in Singapore, including two who offer motor insurance online to remove the cost of intermediation. Consumers therefore have a wide range of insurers to choose from. They should obtain quotations from different companies, and shop around for the best price for the specific type of coverage desired. Competitive pricing gives motorists more choices while spurring insurers to reduce cost and customise their products. The amount of motor insurance premiums charged is based on the insurer's assessment of the risk that the policyholder brings to the pool 2 .

Motor insurers may assess these risks differently depending on their business strategy, target market segment, risk appetite and loss experience. This may result in differences in the computation of premium payable, although market competition will ensure a certain amount of pricing discipline. If an insurance company quotes a premium of $10,000 while its competitor quotes $5,000 for a policy that is identical in every manner, then the more costly insurer will lose its market share. On the other hand, if the $5,000 quote is mispriced, this may inevitably lead to the insurer raising its premiums over time to recover its losses.

Of course, for the market to work, consumers must make informed decisions and exercise their choice freely. MAS will continue to use the MoneySENSE national financial education programme and work with the General Insurance Association of Singapore and other relevant stakeholders to educate consumers on motor insurance matters to enable them to make well-informed decisions.

- Make, model, engine capacity and age of vehicle.

- Age, gender, occupation, driving experience and claims history of the driver.

- Use of the vehicle (whether for private use/corporate use/commercial use/hire etc).

- Type of cover (a higher premium is charged for a comprehensive insurance policy compared to a third party policy).

- Level of deductible (As deductible relates to the first amount of each claim which is not covered by the policy and is borne by the policyholder, a lower deductible would mean that the policyholder pays higher premiums for his motor insurance policy compared to another policyholder who pays a lower premium for a higher deductible).