2009 was a memorable year for the entire Insurance industry, not due to the new and stable central government or its policies, but due to two strange news items concerning insurance appeared in the press a while ago. The first news item is ‘Motor premium to depend on the color of car – brighter the color, lower the premium’. And the second one was ‘Senior citizens can now go for health cover’.
I not only as a common man but as a professional who practices insurance, miserably failed to understand as to why these news items were given tremendous national importance.
Probably due to national projection of these news items, it was thought that it would make the people of India rush to choose only bright coloured cars to purchase with their mind set on lower insurance premiums; the senior citizens of our country giving a big sigh of relief and rejoice at the prospect of their not being refused for medical insurance!
Brighter the color – Lower the premium:
Let us take ‘Motor premium to depend on the color of car – brighter the color, lower the premium’. It is a matter of common knowledge that no insurance company doing motor business is in profits in India. In fact, this is the case all over the world and our observation holds good anywhere in the world. Many factors are considered while rating & underwriting motor business.
Age & type of the vehicle, its cubic capacity, age of driver, address of owner etc. are some of those factors. However, people are surprised hearing ‘Brighter the color – lower the premium’! On the face of this statement, it looks a bright idea. Because brighter coloured vehicles are easily visible and therefore there are less chances of accident. If this is the logic, Indian roads should be swarming with ‘RED’ coloured cars.
Bible says ‘Father in heaven, give not fish; teach fishing’. In a similar vein, do not paint cars with bright colours – ensure to have good drivers with good driving sense. Anywhere in the world it takes huge effort and money to obtain driving licence. It is a common thing for people to fail 10 to 15 times in driving test abroad. In India driving licence is the easiest and cheapest thing to obtain.
No wonder, we have unruly and impatient traffic with road rage! What bright color would do when we have untrained drivers? Imagine a picture, where everyone tries to pay fewer premiums on motor insurance by getting their cars painted with bright colours! Untrained drivers and fewer premiums would invariably result in catastrophic losses for any insurance company.
If ‘Motor premium to depend on the color of car – brighter the color, lower the premium’ is true, then ‘Motor insurance premium – sorry – any insurance premium must depend on the Zodiac signs of the insured – driver would also be true! Let me share the details of a strange experiment conducted.
Correlation between Astrology & Insurance:
Is there a correlation between astrological signs, driving ability and insurance premiums? We have, indeed, found reason as to why there is huge variance between motor insurance rates of various insurance companies. After the de-tariff regime, this variance has further widened. If risk under consideration and the underwriting principles are same, it is commonsense then, there should not be huge variance in insurance premium rates.
A remarkable study conducted on the ‘Zodiac signs and car accidents’ suggests that we should be extremely cautious of getting into a vehicle driven by a Libra, Aquarian or Aries. It does not matter how careful they are behind the steering wheel or their long driving experience, the zodiac signs play a vital role in the ability to avoid accidents or traffic violations.
Further, the zodiac signs tell why a company is paying for too many motor claims or incurring huge losses on motor portfolio! In other words, astrological signs play a significant role in predicting motor accidents. Truth is stranger than fiction!
This study took in to consideration 1, 00,000 motor claims records for the past six years from 5 countries and analysed them. Majority accidents are from Libras (born between Sept. 23 and Oct. 22), followed by Aquarians (Jan. 20-Feb. 18) and Aries (March 21-April 19), as the worst traffic violators and drivers who made most accidents. Further Leos (July 23-Aug. 22) and Gemini’s (May 21-June 20) are found to be the best and safe drivers with negligible traffic violations & accidents.
These results are absolutely shocking and they make a mockery of our present day premium rating standards. As stated earlier, address of the insured, education, age etc. are some vital underwriting considerations in motor insurance. In the light of this bizarre experiment and stranger results, the traditional important underwriting factors appear to be of no consideration.
Generally, it is understood and practiced by all motor underwriters internationally- it is considered high risk in motor insurance if the driver is less than 24 years and not very high risk if the insured is 25 years and above. Using the findings of above experiment, an underwriter would be glad to go for a drive with a 24 year old Leo than a 25-year old Aries, who are very generous and make others comfortable through their driving. They would not mind if other motorists overtake them on road. When it comes to Aries, it is quite the other way. Their attitude is that of ‘Me First’ and this nature leads them in to trouble.
I never believed in astrological signs before. I further believed insurance is common man’s easily understandable definition of Risk Management. But looking at the spectacular and irrefutable results of the experiment, I would be compelled to ask for the date of birth of taxi driver. If it is Aries i.e. born between March 21 and April 19, then I would tell him ‘Thank You’ and look for another taxi!
I do not think the proposer of ‘Motor premium to depend on the color of car – brighter the color, lower the premium’ would have carried out an experiment in the lines of Zodiac signs. Without any concrete proof / result the proposal brighter the color, lower the premium would be ignored and that news item will be termed as ‘somehow hog lime light’ news item, will be forgotten in due course. Why we come up with ‘somehow hog lime light’ news items beats imagination.
Senior Citizens can now go for health cover:
Senior Citizens no more need to feel insecure because of insurance companies’ denial to give health cover as regulator IRDA has asked insurers not to deny medical insurance to customers of at least till 65 years of age. All health insurance products filed hereafter must allow entry at least till 65 years of age,” Insurance Regulatory and Development Authority said in a communication to CEOs of all general insurance companies.
This is a part of what is appeared in news paper. Apparently this news item and the communication sent by the regulator to all the CEOs of insurance companies gave an impression that hitherto all insurance companies were refusing or declining to offer health insurance cover to senior citizens.
It further looked as if the CEOs and their insurance companies are hell bent on ensuring nothing but more suffering for all senior citizens and final elimination of this ‘senior class’ through the medical insurance denial. This news item projected all insurers as ‘premium taking monsters’ if you are not a senior citizen and the news item further projected the regulator as their only saviour!
Fortunately for all insurance companies, this is not entirely true. No insurer ever denies any risk. It is insurers’ business to accept risks. Risks bring more premiums for the insurer. In fact declining to accept risk is the last resort for any insurer. Further, a seasoned underwriter would say ‘all risks can be accepted, provided the client is willing to pay premium as per the degree of risk. In fact, the first underwriting principle taught in any insurance class is ‘never refuse to accept risk’.
Should there be any denial or declinature, it is the duty of the insurer to record in writing and ensures to inform the client. These reasons not only stand the test of ‘reasonableness & fairness’, but also are written not in the ‘language of a metaphysician but of a common man’.
This has been a wonderful uninterrupted tradition with all insurers for the last 100 years in India. The regulator has not added something spectacularly new through their communication i.e. ‘any denial to health insurance for senior citizens should be made in writing with reasons furnished and recorded. Such reasons should stand scrutiny of reasonableness and fairness’.
A question for prudent underwriter arises here – what should be the nature of premium being charged? The nature of premium arrived by the underwriter cannot be subjective, unfair and based on personal likings of the underwriter. Way back in 1912 the courts have come up with the concept of ‘prudent underwriter’. The courts defined a ‘prudent underwriter’ as one who charges fair, justifiable and transparent premium. Further, the court went on to say that the premium calculated by one ‘prudent underwriter’ is similar to another ‘prudent underwriter’.
These concepts are well digested by the insurers and these principles ensure the continued existence of an insurer. The premium chargeable for any class of insurance business should not be either too high or too low; either will ensure the insurer to go out of business. If this is the case, what is it that makes special when the IRDA says ‘the premium charged for health insurance products catering to the needs of senior citizens should be fair, justified, transparent and duly disclosed upfront’.
IRDA further said ‘insurers should devise mechanisms to reward policyholders for early entry and continued renewals with the same insurers’. In all general insurance policies these rewards exist. It is either called ‘No Claim Bonus’ or ‘renewal discount’ by the insurers.
Looking at the entire circular, it is clear that the regulator is lacking in the support of ‘qualified experts with a vision’ to be its advisors or taking the dynamic insurance environment too easily.
When the insurance and re-insurance companies across the world are filing for bankruptcy, the people of India are expecting more informed controls and an easily understandable vision of insurance future from the IRDA.
The IRDA has to grow further strong. The Indian people’s expectations are much higher from the insurance regulator. The IRDA is already 10 years old and we wish IRDA a happy, well regulated birthday. We further wish IRDA to grow as strong and as wise as the FSA (Financial Services Authority) of Great Briton.