THE insurance industry should double the premiums levied on motor vehicles imported from Asia to avoid losses in this class, an expert has warned.Â Motor is the dominant class with a contribution of 40% to Zimbabwe’s gross insurance premium written in the nine months to September 30 2012.
The warning by Jephita Gwatipedza, ZEP-Re regional manager, comes at a time Asian cars, particularly reconditioned vehicles from Japan, have been popular with Zimbabweans as they are affordable compared to those assembled locally.
Gwatipedza said that companies need to bring science into pricing of insurance products to stem the hemorrhage in some assets classes.
“My view is that the price of insurance for these Japanese grey imports must be twice the cost of other cars. More so, the industry needs to bring some science into the pricing of motor insurance rather than the current thumb suck approach because risk profiles are different,” Gwatipedza said.
Statistics from the Insurance and Pensions Commission (Ipec) showed that total short term insurance market closed at US$141 million for the nine months to September 30 2012 and was expected to reach US$220 million in the full year ended 2012.
Gwatipedza said very few companies are making money from motor insurance mainly because of the cost and unavailability of spare parts “especially for these cheap Japanese imported reconditioned cars which can easily be written off because of minor damages”.
He said the grey imports had caused congestion on roads and this coupled with many unlicenced and inexperienced drivers and the poor state of roads, is a major contributing factor to the incidences of losses.
Gwatipedza said the short term insurance sector was sitting on a time bomb in the property and engineering classes as businesses are relying on antiquated equipment to produce goods and services — some of the technology being used is over 50 years old.
“Some of the losses the industries are paying are normal wear and tear but because of lack of skills, it is difficult for the market to isolate cases. The general view is that the insurers run the risk of financing the replacement of old and antiquated machinery and equipment through claims,” he said.
Property and engineering contributed a combined 26% to gross premium written.
Bonds and guarantees contributed 4% of the gross premium and Gwatipedza said that in distressed economies like Zimbabwe insurers run the risk of losing money if they write these lines of business blindly.
“There have been facilities for tobacco farmers from farming inputs suppliers which have been packaged under the guise of credit/bonds but the long and short of this is that these are all financial guarantees and insurers who have been duped to believe that these are normal insurance products had their fingers burnt,” he said.