ABU DHABI // Motorists will pay more for their car insurance from January 1 when new tariff rates are introduced and companies pass on the cost of ambulance services and courtesy cars to customers.
New maximum and minimum premiums will be set for third-party and comprehensive policies, depending on vehicle type.
The UAE Insurance Authority has issued a new vehicle insurance tariff system, on which premiums are based. The new regulation, effective from January 1, 2017, supersedes an existing circular that has been in place since 1996.
“It’s pretty straightforward,” said Frederik Bisbjerg, executive vice president of Mena Retail at Qatar Insurance Company. “The insurance regulator has given us parameters to work with so we have to set limits under the scheme.
“The minimum has been increased, which is good for the insurance companies because there has been a lot of competition, especially for cars of lesser value.”
The new system includes unified motor vehicle insurance policies against third-party liability and against loss and damage.
The tariff will include additional bolt-on premiums to cover the cost of ambulance services and medical evacuation to hospitals.
“Across the board, everybody will have to pay a somewhat higher premium because we insurers have to offset the ambulance fees, which we’ve already done, and the 10-day replacement vehicle,” Mr Bisbjerg said.
“This is part of building up the reserves of insurance companies so we can pay for the claims that we are obligated to do.”
It will be mandatory for insurance companies to give policyholders compensation equivalent to the cost of a replacement car after an accident for a maximum of 10 days or pay out up to Dh300 per day for a rental.
“Most chief executives at insurance companies have welcomed stricter regulations on motor insurance,” said Pascal Persoon, chief executive of eData Management Solutions in Dubai, which developed risk-management software for the insurance industry. But they fear premiums will go up.
A replacement, or courtesy, car – or cash for a rental – is sometimes provided when a vehicle is being repaired but until now this has been entirely dependent on the type of policy and the insurer.
“Imagine paying out Dh300 a day for 10 days, which is already Dh3,000 for someone with a comprehensive insurance,” he said. “The other issue is insurers don’t have their own vehicles to replace cars involved in accidents.”
The authority retained the maximum premium for policies against comprehensive liability and against loss and damage for saloon cars at 5 per cent. It is unclear whether the maximum rate of 5 per cent will also apply to sports cars.
“The new tariff system is fair but the only thing I’m worried about is if a saloon car is a high-performance vehicle, such as a super sports car, valued at Dh3 million to Dh4 million,” Mr Bisbjerg said. “I’d be worried to insure it for a 19-year-old kid at 5 per cent.”
Mr Persoon agreed it was a grey area under the new guidelines.
“Regardless of the history of the driver, it’s 5 per cent, which should not be the case,” he said. “In the UK or US, if you cause an accident that is quite severe, the premium directly jumps to 8 to 9 per cent.”
The minimum premium for a comprehensive insurance policy for a private saloon car is fixed at Dh1,300, and Dh2,000 for 4×4 vehicles.
The minimum premium for a third-party liability insurance policy for a four-cylinder private saloon car will be Dh750, while the maximum amount will be Dh1,300.
The premium increases based on engine capacity with a minimum of Dh1,300 for an eight-cylinder saloon car to a maximum of Dh2,100.
For a four-cylinder 4×4, the minimum and maximum premiums will be Dh1,000 and Dh1,750, respectively.
Under the new rules, insurance companies are allowed to quote prices based on technical or actuarial information, but cannot levy or charge additional amounts without a resolution by the Insurance Authority.
David Harris, director of distribution at RSA Insurance, said the group underwrites policies based on the level and type of risk that each customer brings to its books.
“So far we have made good progress and we are in good shape to meet the deadline,” Mr Harris said. “We have a great working relationship with the regulator, and we will not hesitate to seek their support for further clarification, especially during the first implementation phase.”
Mr Persoon, however, believes the insurance industry needs some clearer guidelines, including having a shared database on driver records and vehicle history.
“The next step from the insurance company is to have a shared database that is readily available to insurers, enabling them to identify risks,” he said.
In doing so, drivers with a history of accidents will pay a higher premium than careful drivers. Accident histories can help them to charge fairer premiums based on risk profile, prevent fraudulent claims and lead to safer roads.