AUTO INSURANCE PROSPECTS

How much does a citizen have to pay for the insurance of his vehicles? It is also an issue.

By KHALIL AHMED
May 15 - May 21, 2006

To get life and possessions (dental insurance, health insurance, vision insurance, life insurance, long term disability insurance, travel/accident insurance, auto insurance etc.) etc. insured is the norm in the so-called civilized Western World hence the insurance companies attain hefty profits and losses at times. However, in the country like that of ours, the insurance companies are still in their infancy. Honestly speaking, there are a number of benefits for getting one's life and possessions insured. In our country, an ordinary citizen still has a long way to go to merely comprehend what those benefits are! In the West, there are numerous renowned insurance companies such as US insurance giant American International Group (AIG), IGI Insurance Company Limited of England, the insurance giant Lloyd's of London, the largest US Reinsurer General Re, the German group Allianz, France's Axa, UK-based group CGNU, Chubb, PMA Capital, AMP Insurance etc. whereas in our country, millions of citizens still are unaware (because of lack of education) even of the existence of the insurance companies. And incase they know some names, those names might be State Life Insurance Corporation of Pakistan, Adamjee Insurance Company Limited, the Eastern Federal Union (EFU) etc. The element of unawareness to me is by virtue of two reasons: a quarter of population is living in poverty, major chunk of population is from villages and these people have their own world within their villages and nearby areas. When we talk about cities of Pakistan, we see a growing trend towards getting the things insured reasons being perhaps the consumer financing by the financial institutions and the prevalent theft cases.

I hardly remember people getting their bikes and cars insured before and during 1980s.

The general insurance trend by the common citizens in cities however was visible during 1990s and onwards.

The question arises: what made a common citizen to go for insurance of his vehicle if he purchases without getting it financed by any institution. Off course, if he gets it financed by any institution, he cannot get it without insurance. Why people in cities particularly are opting for insurance now? Is it insecurity? Is it fear? Fear of unknown. It is fear which at times makes you do either good or evil deeds. It is fear which makes you take a few steps disliked by you and it is fear by virtue of which you take precautionary measures. Taking precautionary measures is sheer wisdom to me. Precautionary measures are taken by the people with futuristic vision and intelligent bent of mind. Any thing can happen at any moment and it is not at all viable to predict with 100% surety about future. Well, the option of insurance of vehicles has gathered momentum primarily because of insecure circumstances. If you buy a motorcycle for around Rs 50,000 and buy a car for around Rs 500,000 and you lose your vehicle by any means, it will be a big loss of your hard-earned money. As there don't seem to be any effective measures to curb the vehicle theft incidents, the citizens have to find some way to save their hard-earned money if not vehicles from the vehicle-theft mafia. Since I have written about insecurity, let me give you some instances of vehicles being stolen or snatched over the period of time. You must have read almost everyday that such and such number of vehicles have been snatched at gun point or stolen in Karachi. According to a source 56 vehicles were stolen in a single day in November, 2001 in Karachi. In January, 2002, on average 20 vehicles including cars and motorcycles were stolen per day. There are instances between 2002 and 2004 when during a particular month over 600 vehicles were either stolen or snatched at the gun point from the citizens in Karachi. As far as last year is concerned, there are examples when the citizens were deprived of over 20 cars and motorbikes during a single day. Undoubtedly, the magnitude of the problem is alarming. One insurance company employee revealed that the favourite cars of thieves are Suzuki Mehran and Toyota Corolla. The theft and snatching cases of these cars are rife and the insurance companies are adversely affected. Just imagine that a citizen pays the huge amount of money for a new car and the hefty premium (still rife even after the import of over 27000 vehicles during the current fiscal year), what will be the level of suffering when he loses his vehicle? This is the sense of insecurity and fear for which there is no other option but getting the vehicle insured and have at least some level of security as far as getting the market value price of the car is concerned. When it comes to loss, it is insurance companies which are hard hit by claims due to rampant theft in the city and at the same time the claimants undergo the pain of going to police station and getting the FIR lodged with the surety of getting the amount from the insurance company.

How much does a citizen have to pay for the insurance of his vehicles? It is also an issue. According to a source the rate of insurance differs from company to company. It is between 2.7 percent to 4.7 percent. The renowned companies which are famous for the immediate payment of the claim filed by the client don't charge less than 3.5 percent. One of my colleagues has recently got his 1995 model Corolla with the market value price worth Rs 550,000 insured at four percent from a renowned insurance company. He has paid Rs 22, 000 for a year of insurance cover. When I saw his net payable amount which is Rs 22, 000, I came to know that apart from gross premium, there are other things like F.I. Fee, C.E.D. (634 rupees) and stamp duty (20 rupees). Incase you get your car worth say Rs 890,000 you will have to pay over Rs 35,000 per annum. It has been observed that the major concern of the vehicle owner is the theft not the accidental damage and this is the indicator leading people towards insurance companies who in fact give them protection.

One bright prospect for the insurance companies is the colossal demand of vehicles at present which has continued the rising trend of demand over past five years. The production of the local vehicles is on rise and the import of over 07 thousand vehicles last year and over 27000 vehicles during the current fiscal year have brought good business opportunities for the insurance firms provided that insecurity is not prevalent. There is a lot of potential in Pakistan and the auto market will grow thus pushing the auto insurance trend upward. Sales of cars soared by 27 per cent in March against the same month last year and this trend seems to be prevailing in the days to come. At present 08 out of 1000 people in Pakistan possess a vehicle against 12 out of 1000 people in India and 640 out of 1000 people in Malaysia. With a belief that there is an emerging middle class in the cities of our country, it can be predicted that in a couple of years 10 out 1000 people will be able to possess any form of vehicle in Pakistan.

There is every reason to believe that general insurance companies have well times awaiting in auto insurance business in the forthcoming years.