Loss ratios main factor in discrepancies

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Loss ratios main factor in discrepancies
Published: 1/08/2011 at 12:00 AM
Bangkok Post: Newspaper section: Business
 
When drivers compare notes about how much they're paying for insurance, some are surprised to learn that there can be a big price difference between two car models of similar style, value and age.

That's no accident, say insurers, who point to detailed industry statistics showing that some models seem to attract more claims and bigger repair bills.

The Insurance Premium Rating Bureau (IPRB) conducts research into the loss ratio and claim frequency of insured vehicles, aimed not only at protecting the interests of insurance companies but also consumers.

The IPRB, an independent organisation established in 2004 by the General Insurance Association, collects data to provide a reference on loss costs for insurance products including auto insurance.

Insurance companies use this data to adjust premium rates effectively, but consumers also benefit from the information.

"Consumers can examine whether the proposed premiums are fair and reasonable," said Saroj Kasemsukchotikul, an official of IPRB.

The latest IPRB report shows that among 50 car models, the Toyota Vios was the most insured at 762,297 units, drawing more than 10 billion baht in premium income to the industry between 2005 and 2009.

The claim frequency for Vios was at 92%, with the average claim severity per accident of 11,400 baht, resulting in a loss cost/unit of 11,557 baht.

Claim frequency is the anticipated percentage of drivers who will make claims against a company and the number of claims they will make during a certain period, while the loss ratio is the ratio of paid and incurred claims plus expenses relative to premiums.

The highest loss ratio in the industry belongs to the Mazda3, for which first-class premiums cost 20,000 to 22,000 baht a year. The average claim frequency for the car is 107.24% and the average claim is 17,400 baht, with a loss ratio of 101.51%.

The Isuzu Dmax had the highest policy sales in the pickup category, and it recorded a low claim frequency of 58% but a high average claim severity of more than 14,000 baht per accident. But the loss cost of the Dmax remains far lower than for the Vios, at 8,349 baht per accident or a 53% loss ratio.

For insurers, the pickup model is more profitable. But this does not mean that insurers' premiums for high-claim models will be increased because any changes to premiums are subject to approval by the Office of the Insurance Commission (OIC).

"Normally the commission sets a big gap between the lowest and highest premium rates, leaving it to the insurer to adjust premiums to cope with costs," said a source at the OIC.

Besides the loss ratio, the OIC also encourages insurers to set premiums that vary according to the age of insured customers. Insurance firms may offer a 15% discount for customers between 36 and 50 years old, with a 10% discount for those aged 25 to 35. Young drivers aged 18 to 24 are considered a high-risk group and may only receive a 5% discount if they have a good driving record. A discount of 15-20% on premiums may be offered if the car is used by a sole driver.