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Can Asian motor insurers afford to offer premium discounts?

Source: Asia Insurance Review | Jun 2020

Motor insurers in the US have responded to calls for premium rebates amid the COVID-19 pandemic as lockdown measures have drastically reduced car traffic. Should insurers in Asia follow suit?  
By Ridwan Abbas
Motor insurance typically generates the largest portion of premiums in most markets in Asia, and car usage and ownership has been steadily rising in recent years. 
But with many countries imposing movement restrictions to curb the spread of COVID-19, car use has dropped significantly in the last two months. This theoretically leads to lower frequency of motor accidents which in turn means lower claim payouts for motor insurers than is usually the case. 
On the flipside, increased mental strain arising from various impact of the pandemic could lead some to engage in more risky behaviour, including on the road, which may cause a surge in claims frequency as lockdown measures are being eased. 
Australia’s RCAV executive general manger, motoring and mobility Phil Turnbull recently said, “It is too early to assess the impact on overall claims costs as there are other variables at play, such as the severity of crashes, which tend to worsen with less congestion, leading to increased claims costs.” 
A spokesperson from Suncorp also said, “Even with reduced people on the roads at the moment, cars are still at risk from storms, theft, damage while parked and road accidents.”
The Australian market has so far resisted giving premium discounts for car owners, instead choosing to offer flexible payment plans to policyholders in financial distress. 
Motor insurers returning premiums
In truth, it may be too early to judge the impact of lockdowns and lower car usage on motor claims. However, that has not stopped calls from some parties for motor insurers to offer premium discounts or refunds in light of COVID-19. 
In response, all of the major US auto insurers have announced discounts for personal lines motor customers, while a number of carriers have also targeted business customers. Estimates from the Insurance Information Institute said that refunds, discounts, dividends and credits announced by the country’s motor insurers total $8.1bn. Other estimates state that the figure could reach $10.5bn as more insurers get on board to announce their offers. 
Closer to home, Malaysia’s Etiqa recently announced that existing car insurance customers in its Singapore business would receive S$36 ($25) in Etiqa dollars (Etiqa$) per plan, credited directly into their personal e-wallets in their TiqConnect accounts by the end of May. 
They would remain valid till the end of 2021, and can be used to offset private car premiums upon renewal. If otherwise unspent, the credits may also be used to purchase other products. 
Can most motor insurers afford premium discounts?
It is certainly commendable when insurers step up to offer relief to policyholders during this period, although conditions in motor markets in many Asian countries may mean that not many insurers have the wriggle room to offer premium discounts or refunds – and may have to adopt other ways of showing solidarity with policyholders, perhaps similar to the Australian example.
In Singapore, the motor segment posted an underwriting loss of S$17.4m last year having incurred a 7.6% or S$41.3m increase in total claims paid out. The sector however registered a profit of S$$9.2m in 2018. 
Meanwhile, the Malaysian motor market has been experiencing underwriting losses for more than 10 years. Average premium per policy has been on a downward trend since 2016 while overall costs of vehicle repairs have risen owing to increases in motor spare part prices amongst other factors. 
In 2019, the industry recorded an underwriting loss of MYR335m ($77m) with MYR5.5bn being paid in motor claims. On a daily basis, Malaysian insurers pay out MYR15m for property damage, bodily injury and vehicle theft.
In Thailand, the motor market has reported net losses for four consecutive years from 2016-2019. The combined net loss ratio in the motor insurance business stood at 106.7%, while the ratio for non-motor business, such as fire, marine and miscellaneous insurance, was 81.5%.
New risk factors 
With the global economy plunging into recession, new car sales figures are expected to drop significantly. An increasing strain in personal finances could also see a rise in premium defaults or policy lapses. 
And should insurers start to face social, or even regulatory pressure, to return premiums during this period, the financial hit could cause distressed combined ratios to creep even higher. 
These are certainly risk factors for motor insurers, especially in loss-making motor markets, despite the seeming respite of lower car usage during the lockdown period. A 
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