A relationship of trust and mutual respect rights would result in loss minimization of motor claims.
Motor insurance started in 1885 in England whereas in India, the Insurance Act was passed in 1938 and the General Insurance Business nationalization act was passed in 1972. After the Insurance Regulatory and Development Authority Act 1999, the era of private insurance ushered again in Feb. 2001. Eight private players and four public sector units of non-life insurance underwrote about Rs.13900/- crore premium in the year 2002-2003. Out of this, about Rs.5400/- crore or 38% account for motor insurance premiums.
With about 65 to 75% average claim ratio for own damage claims and 150% for third party claims against the ideal claim ratio of 40% to 50% for profitability, the motor portfolio is a loss-making venture. It is not surprising that in this age of cut-throat competition, private players feel shy of insuring commercial vehicles and four PSU units are avoiding comprehensive insurance of commercial vehicles older than five years. This tactical move has put the commercial vehicle owners to a great disadvantage and has adversely affected the bread and butter of the motor surveyors.
Let us analyze why motor insurance has become an eyesore for the insurers. What does loss minimization mean? Does it mean paying the minimum amount to the insured or paying the justified and the legitimate dues against the genuine loss sustained by the insured property? We have to do some introspection and study what part each of the following interrelated units can play to turn the wheel in the right direction :
- IRDA & TAC
- Insurers
- Surveyor
- Insured
- Others
IRDA & TAC :
1.1 The surveyors’ categorization process undertaken by IRDA with good intentions has failed to produce the desired results because it lacked transparency, systematic approach and proper implementation. IRDA should scrutinize the surveyor’s performance report and revise the surveyors’ categorization process as some deserving surveyors have been allotted lower category and vice versa. The years of experience of a surveyor in the survey profession (besides in other professions) should get the proper recognition for awarding proper category. Only the upper financial limit of each category should be specified and the lower limit should be left to the discretion of the insurers as a more practical measure.
1.2 The Engg. Degree or diploma from the AICTE recognized institutions should be considered by IRDA as it must be known to the concerned authorities that many one-room engineering colleges awarding degree/diploma have mushroom growth in our country.
1.3 Just as IRDA has set a time limit for the submission of survey reports and claim disbursement by the insurers, it should also fix up a time limit for the payment of the surveyor’s professional fee bills (after the submission of the survey report). Any deviation from the stipulated time limit (without valid reasons) should attract interest. The annual submission of return to IRDA (Regulation No.13Bii) by the surveyor should also reflect his outstanding survey bill amount with various insurers.
1.4 There should be a cap on third party liability as per practice in case of rail or air accident claims so that the motor insurance business becomes attractive to insurers.
1.5 To reduce the dependence of experienced surveyors on insurance companies for jobs, IRDA should allow them to take up motor survey jobs directly from the insured just like any other professional e.g. advocate, chartered accountant. There should be some checks on the quality of reporting and justification of assessment by such surveyors.
INSURERS :
What are the steps that an insurer can take for loss minimization?
2.1 To appoint the right surveyor for the right job as per IRDA guidelines and the only merit should be the criterion for deputation of a surveyor by rotation.
2.2 The surveyors are expected to take photographs of damages to the vehicle from all angles and for all parts. Therefore the insurers should pay to the surveyor for at least 24 photographs (without any duplications) for major losses so that the surveyor may justify the assessment. The insurers should settle the surveyor’s professional fee bills promptly and properly (strictly as per GIPSA approved norms) so that the surveyors reciprocate this good gesture by rendering high-quality service to the clients of the insurance company.
2.3 To refuse renewal of policy to the insured who makes unreasonable demands, lodges false claims or is an expert habitual claimant. All insurance companies should jointly form a data bank where the claim history of such clients should be stored and shared for future reference.
2.4 To dispose of off undisputed claims of clients promptly with complete transparency and without wasting the insured’s time in follow-ups. If insurers save insured time, he would reciprocate by accepting the justified assessment.
2.5 There should be specific guidelines for fixing IDV of a vehicle more than five years old. Sometime down the line, IDV is fixed higher than the actual market value resulting in loss to insurers in case of Total Loss Assessment. There should be a uniform system of applying excess without any rebate in premium over and above the compulsory excess for a vehicle of age beyond five years.
2.6 Pre-insurance inspection and photography of the vehicle by a surveyor should be made compulsory whenever this is break-in insurance.
2.7 Insurance Policy copy must mention vehicle Engine No., Chassis No., Registration No., type of vehicle, model variants, year of manufacture & compulsory excess/voluntary excess/imposed excess on OD claims clearly for proper assessment.
SURVEYOR :
In my opinion, any activity in loss control can be more effective if surveyors are taken into confidence. Surveyor is a very important link between insurers and the insured. A healthy relationship of mutual trust and interest will help in reducing the motor claim ratio.
Anything that goes wrong anywhere during the claim process, the surveyor is not always responsible for it. There is no job guarantee but he must sign an affidavit that he is not engaged in any other occupation. He has to waste a lot of time and energy to secure a job and for survey fee settlement. This infuses a sense of insecurity which adversely affects the quality of reporting. Unless the surveyor devotes his major time on the job in hand, he cants deliver quality service in time.
Spot surveyors and final surveyors must mention the identification number of major assemblies in their report to verify the genuine replacements and try to improve the quality of the survey report. Reinspection surveyor must take the photograph of salvage parts and note identification No. of newly replaced parts or assembly.
The insurance company and IRDA have to address the problems of surveyors sympathetically. The working conditions, job allotment procedure and schedule of professional fees should be conducive for an honest, efficient and experienced surveyor to survive on this profession only.
INSURED :
A tug of war starts between insured, insurers and surveyor just after the motor claim is reported. As the insured has become quite knowledgeable, his expectations have gone up. Generally, an insured wants to recover all types of expenses incurred by him on his vehicle after and before the accident and this widens the gap between the insured expectation and surveyors assessment. With such a big list of demands, it is a Herculean task for the surveyor to satisfy an insured (especially when he is an influential person) on one side & to justify the assessment with the insurer’s point of view on the other side.
If the insured gets his claim within a reasonable time with least of hassles & without any unexplained reduction in claim amount, he may refrain from pulling strings in the wrong direction. In other words, if he is assured of justified and efficient service after lodging the claim, we can expect better co-operation from him. This is where private players score over the PSU units.
OTHERS :
5.1 It is encouraging to note that the ministry of road transport has asked automobile manufacturers to implement the new specification for the steering system, steering wheels, seats, and brakes for better safety to passengers and reduced fatigue to the drivers. Power steering has been made mandatory for all heavy vehicles. Now Automobile Indian standard has been specified for rearview mirror and the norms governing the distance covered by the vehicle after application of brakes have also been reduced.
5.2 It is good news that a National workshop on Motor Insurance Data and Research was conducted under the aegis of IRDA and TAC on January 28 & 29, 2003 to kick start the process of establishing a system to meet the needs of the industry. A committee was constituted by IRDA Chairman for setting up the motor insurance data and research on factors relating to the frequency and severity of road accidents. I wonder if, on their panel, any experienced surveyors have very vast data on the subject.
5.3 Automobile manufactures can contribute a lot for the loss minimization if they take the following steps at the designing and manufacturing level:-
(a) Supply bare body shell (welded body panel structure without removable panels like doors/bonnet/fenders & without paint) for the new generation light motor vehicles. The removable body panels to be fitted by nuts and bolts to the bare body shell should be recommended as per requirement.
(b) Design the front and rear bumper in three pieces instead of a single unit (without sacrificing the shock-absorbing capacity) so that a complete bumper is not replaced in case of an accidental impact on one side of the vehicle.
(c) Side molding for body panels should be compulsory to protect the metallic panels from minor side impacts.
(d) The facility of extended warranty policy should be encouraged for better maintenance of cars.
(e) Punch identification marks (especially for cars) on all major assemblies, Engine No. and Chassis No. should not only appear on removable riveted plates but also be punched on body and engine within easy visibility.
(f) Keep a minimum ground clearance of cars to 170 mm for saving gearbox/oil chamber from damages while driving on badly maintained roads and unreasonably high speed-breakers.
5.4 District Transport office and Police Deptt.: District transport office should be strict in issuing the driving license only to those who have passed the driving test. It should plug all holes for the issue of driving license to applicants without undergoing a driving test. Many accidents occur due to a lack of driving skills, fatigue caused by excessive driving or driving the vehicle in drunk conditions. State police or District Transport Office should regularly check drivers for valid driving license.
5.5 Judiciary: The insurers sustain maximum loss due to the high amount of compensation paid in case of third party claims as evident from a 150% claim ratio for such claims. Therefore judiciary plays a very important role in awarding the compensation to third party claimants. More realist formula of paying compensation (accepted by insurer and judiciary) considering age, wage and degree of dependency (or human life value) of the victim should be worked out to bring down the claim ratio from 150% to 75%. There should not be any discrimination between third party claim compensation paid to a rail, air or road victims because human life value does not change with the mode of transport.
All the above-discussed units should work in tandem with each other for better service to the genuine customers, speedy disposal of claims by the insurers, timely submission of reports by the surveyor. A relationship of trust and mutual respect rights would result in loss minimization of motor claims.
By Mr. H. M. Walia, Surveyor & Loss Assessor, Published in The Insurance Times, January 2004
