MOTOR insurance business is losing money. While there are many factors responsible for dwindling profits, a major problem is thefts and snatchings of vehicles. Hijackers have set a new record of vehicle hijackings.

On an average, 59 vehicles were stolen daily in Karachi during the year 2008. One would get an alarming number, if such a data was available for vehicles stolen countrywide. This is a matter of great concern for insurers, because more the hijacking of vehicles, the higher the burden on insurers. .

Inadequate premium because of reduction in rates is yet another problem. According to the Insurance Association of Pakistan, the premium rate of motor car insurance is about 6.5 per cent but many insurers are offering rates even lower than 2.5 per cent. It would be justified to increase premium rates due to the growing loss ratio of motor claims, but insurers are reluctant to do so because of cut-throat competition. among

them. Slashing rates due to unhealthy competition has become an obstacle in the way of funding the motor pool. The solution lies in competition among insurers.

One of the important functions of an insurer is to manage the pool money from which losses are to be paid. If the pool runs dry before paying all the losses, the situation needs to be reviewed. This is required to ensure that insurance premiums are large enough to meet the losses and provide profit after covering the cost of operating business.

Motor insurance is a personal contract in a sense that the terms and conditions of the cover granted to the insured depends on not only the vehicle to be insured but also on the age, occupation and experience of the insured.

It is important to take into consideration the area where the insured vehicle is kept while assessing the risk. The Citizens Police Liaison Committee can help as it provides area-wise details of stolen and snatched vehicles. The areas where car theft and snatching is more frequent may be treated as a higher risk factor and a higher premium may be charged according to the higher exposure.

During the last couple of years, the City District Government has paid considerable attention to the expansion of roads in Karachi, but these are still insufficient to meet the demands of high growth in the number of motor vehicles that went up from 1.13 million in 2002 to 1.8 million in 2007.

There seems to be no decrease in road accidents. Disorganised parking, severe traffic jams and inefficient traffic system have increased the number of motor accidents. Moreover, the increase in prices of spare parts and repair charges has led to an increase in loss ratio.

Atique Ahmed Chishti

IGI Insurance Limited, Karachi