BY Chiu-Cheng Chang, Ph.D.
ABSTRACT
In this paper, we first point out the sharp contrast between Taiwan and Singapore societies and an important cause for this lies in the regulation and management of automobiles। We then review all the important aspects of automobile insurance in Singapore and enlist those areas where Taiwan can learn and adopt so as to improve its chaotic and violent traffic situations. Finally, we draw the conclusion by citing impressive facts that Singapore's automobile insurance can serve as an example for Taiwan to follow.
KEY WORDS
Automobile insurance, third party insurance, AD & D, liability insurance, comprehensive cover, preferential ARF, certificate of entitlement, rating factors, tariff-based system, points system, no claim discount।
He that gives good advice builds with one hand; he that gives good counsel and example builds with both. ----------- Francis Bacon
- INTRODUCTION
Taiwan and Singapore are two Asian island states in sharp contrast. Singapore has been internationally recognized as a clean, orderly and peaceful country with an efficient government and, importantly, she is virtually free from traffic congestion. Taiwan , just the opposite, has been notorious for its dirtiness, crowdedness, disorderliness, violence, chaos and nightmarish traffic jam. Moreover, Taiwan has been burdened with an inefficient government whose credibility is highly questionable due to deep-rooted corruptive problems.
A critically important factor, if not the most important one, causing such a great contrast between Taiwan and Singapore societies lies in the regulation and management of automobiles (including private cars, goods vehicles or trucks, motorcycles, taxis, buses and others). In the paper" Order Out of Chaos---Managing Taiwan's AD& D Risk" (Chang, 1998,p.212-223) , the author criticized Taiwan's compulsory motor vehicle liability insurance and offered a free market approach to managing Taiwan's AD & D risk.
In this paper, I will introduce Singapore's automobile insurance with the intention that it may serve as an example for Taiwan to learn। Specifically, I will describe briefly and generally all the important aspects of Singapore's automobile insurance and, particularly, those special features which may deserve Taiwan's consideration। I will also summarize all those features which Taiwan can learn and adopt so as to improve its chaotic and violent traffic situations, before drawing the conclusion. - THE AUTOMOBILE INSURANCE PORTFOLIO
Since 1982, when it overtook marine, aviation and transit insurance, automobile insurance has been the biggest premium generator of non-life insurance business in Singapore. It has shown tremendous growth since 1982, averaging about 8 per cent per annum after adjusting for inflation.
The largest proportion of automobile insurance premium income is from private car policies, with a proportion of more than 60 per cent. The second largest proportion is from goods vehicle (or truck) policies, representing a 20 per cent share. The third largest proportion is from motorcycle policies with only 5 per cent share. Some automobile risks are not insured, mainly government vehicles which are exempt from compulsory third party insurance.
More than 90 per cent of private car premiums are related to comprehensive cover. The third party fire and theft proportion is about 6 per cent, and third party liability only less than 5 per cent. This is in sharp contrast with Taiwan's corresponding premium distribution among coverages and is an indication of the high values of individual cars in Singapore and the high proportion of cars less than 10 years old. This pattern is also in contrast to that for motorcycle policies where only 25 per cent of premiums are for comprehensive cover and the rest third party only. - THE AUTOMOBILE INSURANCE MARKET
There are about 50 direct insurers writing automobile insurance business in Singapore. The top 10 insurers account for over 60 per cent of the total premium income. NTUC Income is well ahead as the biggest, with close to 20 per cent of the gross automobile insurance premium income. Its automobile insurance is of great importance to the company as its premium income represents 80 per cent of its non-life business. It has an unusual corporate basis, being a co-operative and an offshoot of Singapore's National Trades Union Congress.
The second largest automobile insurer is The Peoples' Insurance Company, with a share of about 10 per cent. The Cosmic Insurance Company has the third largest share of about 7 per cent. These top three have maintained that order consistently since 1988. However, they all have their own specializations. NTUC Income specializes in private cars and controls about 30 per cent of that segment. The People's Insurance underwrites 90 per cent of two taxi fleets. Cosmic Insurance covers tour buses. India International insures the largest public bus company covering only liability for death or bodily injury. The Taisho Marine specializes in motorcycle business, having a 70 per cent share of that segment.
Most automobile insurance in Singapore is sold through agents and brokers, just as in most countries. The selling commissions are at the level of 15 per cent after a market agreement in 1980. There has been a constant movement towards more and more professionalism through new regulations. The Singapore Insurance Brokers Association has implemented a registration scheme requiring their general insurance members to meet specific minimum requirements. Only such members are allowed to describe themselves as brokers. There are about 65 broking firms transacting general business.
Since1990 it has been a requirement that general agents register with the General Insurance Association. For those who have less than five years insurance experience or lack professional qualifications, they must pass an examination to gain the Certificate of
General Insurance awarded by the Singapore Insurance Institute. Agents can not represent more than three insurance companies. There are about 930 corporate agencies and over 5,000 individual agents.
Singapore has a population close to 3 million with a very low unemployment rate. Because of increasing prosperity, the demand for owning an automobile has been increasing rapidly. This demand is restrained by the government to prevent traffic congestion in a densely populated island. The practice of managing traffic density through fiscal measures was introduced as early as 1972 when the additional registration fee (ARF) was increased to 25 per cent, then to 55 per cent in 1974, and to 100 per cent in 1976. Also in 1976 the preferential ARF (PARF) scheme was introduced to encourage car owners to scrap cars by their 10th year of life.
In the period from 1974 to 1989 the vehicle population grew by an average of 4.2 per cent per annum (Lee, 1990; p.33). More effective measures were needed to reduce this growth rate and a quota system was therefore introduced in April, 1990. The government specifies the growth rate figure and thereby the number of new registrations for each period, and makes available a limited number of certificates of entitlement (COE), without which a new car can not be registered for use.
Buyers of new vehicles have to bid for this limited number of COEs, in monthly tender exercises. There are separate quotas for four types of car: small (1000cc and below), medium (1001-1600cc), big (1601-2000cc), and luxury (2001cc and above). Each COE is valid for only 10 years. Successful bidders pay the price offered by the last bidder at the cut-off point. The size of the successful bids in these monthly auctions varies according to demand which in turn is affected by the nation's economic position and prospects and other factors.
The marketing of automobile insurance is made easier because of the legal necessity to insure against third party risks and because there is a high proportion of comprehensive policies. Therefore, price is the major marketing feature. Service has also become important, in terms of speed of response and helpfulness, and indeed "there are more reasons in insurance than in any other product as to why competition should be on service and service alone" (Yap, 1993; p.2).
Most insurers have introduced a 24-hour emergency breakdown, towing and workshop service, a 24-hour claims helpline and even a road tax renewal service. There are direct marketing services through advertising, call-in and telephone quotation facilities, and teleview quotation services. There are also marketing services targetted at groups, with special discounts or terms. Free automobile insurance has been linked to the sale of cars by some automobile dealers. There are attempts at niche marketing and specialized products for statistically better risks such as the over fifties or women. - LEGISLATION AND REGULATION
Automobile insurance is subject to the same legislation and regulations which affect other general insurance business in Singapore, especially the Insurance Act and the Insurance Regulations. However, the underlying philosophy is that of minimum control. This gives insurers great responsibility for self-regulation. The effect is that Singapore insurers have an excellent reputation for financial integrity and prudent practice, combined with a high degree of autonomy consistent with a free market economy thriving on competition.
The Motor Vehicle Third Party Risks & Compensation Act is a very specific legislation. Its central feature is that an automobile may not be used unless there is an insurance policy in force covering the risk of death of or bodily injury to third parties. Since 1981 when the act was amended, a passenger in the vehicle is included within the definition of third party. However, it is not compulsory to insure against damage to third party property.
The Act includes some important sections which give third parties rights directly against the insurer, altering the normal common law position. It also forbids the insurer to repudiate certain claims because of what the insured has done or failed to do. All this is to reinforce the main purpose of the Act which is to ensure that innocent third parties, or their dependents, are financially compensated for death or bodily injury. There is no limit to liability which must be insured under the Act.
Despite the provisions of the Act, there are some cases where there is no valid motor insurance, either because the driver is not insured or can not be traced. For such victims, Singapore has produced a protective device enabling them to claim compassionate or ex-gratia payments through the Motor Insurers Bureau established in 1975. This arrangement is not actually enshrined in legislation, but is a written agreement between the government and the insurers. In most such cases, the Bureau deals directly with the third party claim, subsequently recovering any payment from all insurers in proportion to their automobile insurance premium income. - POLICY PROVISIONS
All policies have to cover those third party risks which are legally required to be insured against. If this is all the policy covers, it is known as an Act policy which is rare. "Third party only" policies also include liability for damage to third party property. The standard private car policy also covers the insured owner for third party risks while driving cars not belonging to him. Similarly, it also covers the situation when the car is being driven by an authorized person who has a license to drive cars. If such a person has an accident while driving this car, any third party claim is dealt with by the vehicle's insurer.
The standard private car policy also provides indemnity to passengers for their legal liability to third parties. This cover relates to incidents caused while getting into, alighting from, or traveling in the insured car. For all the third party risks described, the policy provides unlimited indemnity for either death, injury or property damage. It provides for the insurer to pay all costs and expenses incurred. It also provides for the insurer to arrange for representation at any inquest or inquiry, the defense in legal proceedings, and at the request of the insured to pay for the legal defense of any charge of causing death by driving, when related to a third party incident.
Third party policies can also include fire and theft risks, for an additional premium. The fire risk includes damage by external explosion, self-ignition, lightning, burglary or housebreaking. The theft risk includes damage caused by attempted theft or while the car is stolen.
In addition to the third party risks, a comprehensive policy covers the risk of accidental loss or damage to the insured vehicle and its accessories and spare parts. The maximum liability of the insurer is the market value of the vehicle provided this is not greater than the sum insured. The insurer has the option of either paying in cash for the amount of loss or damage, or repairing or reinstating or replacing the car or any damaged part. The policy also provides for the insurer to pay for the protection and removal of the damaged car to the nearest repair shop.
A comprehensive policy also provides for the payment of specified medical expenses and personal accident benefits. The medical expenses are payable for any bodily injury caused by violent accidental external and visible means. This cover applies to the insured, authorized drivers, and passengers. The personal accident benefits, however, apply only to the insured for death or specific types of disablement. Also, damage to the car caused by strike, riot, or civil commotion is included in most policies. Breakage of glass in windscreens or windows is also part of the standard accidental damage cover.
Most of the conditions and exclusions are those found in automobile insurance policies in most countries. One exclusion which is not so widespread is that which relates to an accident in which the driver is found to be under the influence of drugs or alcohol. This renders the policy inoperative. The conclusive evidence of such influence is a conviction under the appropriate section of the Road Traffic Act or the Misuse of Drugs Act. - RISK PRICING AND RATING
A rating system for automobile insurance endeavours firstly to identify the significant risk factors, and secondly to produce a weighting system for each factor so that an appropriate premium can be calculated for each specific insurance proposal. In automobile insurance, the two main factors are the driver and the vehicle. Singapore has moved from a long established tariff rating system which focused more on the vehicle, to a newer points system which gives greater weight to the driver's influence on risk.
Singapore's new rating system was devised in 1987 as an adaptation of the British system. A number of points are awarded to each risk factor, based on the two main features of car characteristics and driver characteristics and the bridging feature of car usage. The risk factors are as follows:
˙Car characteristics: model, age, value. Cars are normally placed in rating groups based on similar characteristics.
˙ Driver characteristics: age, sex, length of driving experience, demerit points (for
traffic offenses), claim experience.
˙ Car usage: three classes of increasing risk.
The points applicable to each of these factors for a specific risk are then totaled. Each score is shown on a table with its accompanying basic premium. From this the various discounts are deducted.
Naturally other rarer adverse risk factors are considered in arriving at an underwriting decision, such as certain occupations, ill-health, conviction, and those who are neither citizens nor permanent residents of Singapore. Also, various compulsory excesses are applied, such as for young or inexperienced drivers. The underwriting attitude to the elderly differs, some insurers loading the premium by 50 per cent for those over 60, while others charge normal rates, recognizing that this group tends to be more careful and experienced.
A no claims discount scheme for private cars was introduced in 1982. It is intended to encourage good driving, but also has the effect of being an excess in discouraging policyholders from making a claim which would prejudice the discount. The discount is in 10 per cent steps, with a 10 per cent discount after one year and a maximum of 50 per cent after five years. If the discount is at the 50 per cent or 40 per cent level, a claim reduces this to 20 per cent or 10 per cent respectively at the next renewal. If there is more than one claim during the year, the entire discount is forfeited. A discount of 30 per cent or less is wholly lost in the event of a claim.
Another reduction in premium is available through a 5 per cent discount for drivers with a clean driving record for three years. This was introduced in 1992 as a safety incentive.
One of the complications of automobile insurance in Singapore has been whether to include the price paid for certificates of entitlement (COE) as part of the sum insured. After numerous debates, most insurers took the position in June 1992 that it should be included in the sum insured and a higher premium paid. However, based on statistical data, the value of a vehicle has only a small effect on the total size of risk. And this is the reason why the market leader NTUC Income pioneered a rating structure in October 1993 which solves the COE rating and claim problem by ignoring the value of the car and COE cost in premium calculations. - CLAIM EXPERIENCE
The incurred loss ratios for all classes of automobile insurance for direct insurers fluctuated from year to year with a small range of about 7.5 percentage points. The average incurred loss ratio is about 67 per cent. A loss ratio indicates to what extent the account is making an underwriting profit, but conceals a variety of other factors as to why this may be so. These include whether the premium pricing system accurately reflected the risks accepted, the skill of the underwriters in assessing each case, the accident frequency rate, the costs of various risks (mainly repairs and third party), the skills of the various experts who deal with the claim, and the expenses of handling and investigating claims.
In Singapore, the number of vehicles involved in road accidents has fallen significantly by more than 45 per cent since 1982. This is even more remarkable when compared to the increase of more than 15 per cent in the number of vehicles on the road over the same period. The number of people killed or injured in road accidents has also greatly reduced over the same period. In fact, Singapore has one of the lowest road accident death rates in the world, despite its urban density. This is attributed to the nation's effective enforcement of traffic rules and safety campaigns, and the longstanding policy of discouraging an aging vehicle population, with compulsory inspections from the third year of a car onwards.
Although labour costs have been rising, the big insurers all have a system of authorized repairers, and use independent automobile assessors to inspect the damaged vehicles and vet the estimates and work done. Repair shop fraud and touts are reported occasionally but are not considered serious at all. However, the General Insurance Association (GIA) is considering a system for the registration of workshops, and those found to be abusing the system would be struck off. Another approach is for the insurance industry to fund a model workshop which could also undertake research into repair methods, similar to the Thatcham Repair Center in Britain which is funded by the Association of British Insurers.
Theft of vehicles is not a big problem in Singapore. It is a small island, with only one causeway linking it to Johore, Malaysia. There is not much need for the illegal "borrowing" of cars in Singapore, as public transport is plentiful, reliable and cheap. However, those few cars that are stolen have a high value. A growing problem is the theft of accessories from cars, mainly fitted audio systems. About 7 percent of the total amount spent on private car claims is related to theft claims. The GIA has introduced a scheme for the circulation among members of information on stolen vehicles, as a deterrent to fraudulent claims. A worrying development is that of vandalism to cars. In a recent survey, each of 13 workshops visited said that they repaired three to five such cars each month, some of which needed a complete repaint.
Most automobile insurers in Singapore have knock for knock agreements whereby the comprehensive insurer pays for the damage to that car irrespective of which driver was actually to blame. This eliminates the expense of claiming against other insurers, and over time should neither add to nor reduce actual claims payments. Two of the top 10 automobile insurers are not members of the agreement for the following reasons:
(1) Claims agreements can distort a company's own claims statistics.
(2) The trend of increasing claim amounts from more prosperous third parties for uninsured losses and excesses weakens the administrative savings argument.
(3) For those insurers who have a predominantly comprehensive portfolio, they will be disadvantaged if they have an agreement with predominantly third party insurers.
As more Singaporeans become even more prosperous, those injured or killed, although fewer in number, are likely to be entitled to larger amounts of compensation, especially for loss of future earnings. Court awards will be larger, continuing the trend so apparent from reported cases. There have been significant increases in medical costs and hospital charges, although recent government intervention should slow that process. In 1993, a new rule called " offer to settle" was introduced by which either party can make a formal offer to settle the case whereas the traditional payment-into-court rule was available only to the defendant. The new rules also changed the costing system so that the longer a hearing continues the greater the daily cost---a device to encourage speedier settlements. The fee structure of courts has also been changed to strongly discourage litigation for claims below $ 10,000.
The well known long tail effect of injury claims is an advantage to insurers in that claims payments are long delayed. This is mitigated by the practice of awarding interim payments, and recent administrative changes to the civil court system so as to encourage speedier settlements and to discourage litigation by the imposition of higher court charges. However, with the increasing prosperity of more claimants, more injury claims will inevitably take longer to reach an agreed settlement because of the need to establish clear prognoses.
Automobile insurance is susceptible to disputes between insurer and insured. The GIA has set up an Insurance Ombudsman Bureau to help when there was a final disagreement between the parties. The approach to the Bureau must be made within six months of the insurer's final decision. The Bureau may give advice and may make a decision of a cash award or a recommendation. Its limit is $100,000. Although its decision is binding on the insurer, the insured may reject it. There has been a declining number of complaints made to the Bureau, averaging about 10 complaints per year. All these complaint figures are considered particularly low when compared with the number of policyholders and claimants. - WHAT CAN TAIWAN LEARN FROM SINGAPORE ?
Having reviewed all those important aspects of Singapore's automobile insurance, one can easily enlist the areas where Taiwan can learn from Singapore by simply reflecting the corresponding aspects of Taiwan's automobile insurance. What follows are those areas considered most significant:
1. COE.
Every country, particularly those small island states, has its natural limit to accommodating a maximum number of automobiles operating in it. No country has an unlimited accommodating capacity. The introduction of COE in Singapore is considered innovative and effective in the following senses:
(a) It lets the free market decide the price consumers are willing to pay for owning an automobile.
(b) Given sufficient alternatives such as various public transportations, taxi, bicycle etc., consumers' decisions on whether to own an automobile will ultimately reach the point where the marginal utilities for all forms of transportation are essentially the same.
(c) In a dynamic modern society, the prices of COE can best reflect all the relevant factors and thus are considered optimal for each auction period.
(d) The maximum valid period of a COE is 10 years, consistent to and reinforcing the PARF scheme, encouraging car owners to scrap cars by their 10th year of life.
A prerequisite for COE to become feasible in Taiwan is that all forms of public transportations in Taiwan must be greatly improved, expanded, linked and integrated.
2. Third Party Coverage.
In sharp contrast to Singapore's mandatory third party coverage, Taiwan's compulsory motor vehicle liability insurance (CMVLI) is subject to numerous criticisms (Chang, 1998,p.216-217) and essentially none of these is applicable to Singapore's. The most serious problems with CMVLI are (a) the limited and uniform liability and (b) a uniform premium rate for all risks. These two features completely ignore the free market function and can never serve the insurance needs of a modern society. Morever, Singapore's third party policy is far better than Taiwan's counterpart in policy design, provision and other features (see POLICY PROVISION)
3. Risk Pricing And Rating.
Singapore's pricing and rating technique has not only moved from tariff rating system to a points system but also advanced to a rating structure where the risk can be evaluated and priced without paying attention to even the value of the car and COE cost. This is truly a great achievement in risk pricing and rating. In sharp contrast, Taiwan's rating scheme remains essentially in the old tariff rating stage where the focus is on the vehicle. As a result, important rating factors such as driver's length of driving experience, demerit points, extent of daily and yearly car usage, and detailed actual road accident records are completely ignored in Taiwan's rating system. Moreover, Taiwan's policies unbundle risks and benefits to a great extent, contrary to the trend of bundling risks for better economic value and marketing effect. Furthermore, Taiwan's sales commission at the level of 20% and the compulsory contribution of 6% of premium to the Special Compensatory Fund are considered excessive in that they make Taiwan's policies at least 11% more expensive than necessary. All these have made Taiwan's collision insurance prohibitively expensive and encouraged older cars to stay on the road. Finally, Singapore's policies are better than Taiwan's counterparts in policy design, provision, pricing equity, and other features.
4. Coordinated Efforts Among All Parties Concerned.
By all parties, we mean the government, the parliament, police, insurers, courts and the GIA. All parties have constantly and continuously make coordinated efforts to improve everything relevant to the regulation and management of automobiles in Singapore. As described in the above sections, government's innovative ideas, parliament's actions to make them rules of law, police and courts' execution of laws, insurers' offerings of products and services and GIA's initiatives, leadership and professionalism have all contributed to the great success of Singapore's automobile insurance. Taiwan should take heed of the great results from such coordinated efforts. - CONCLUSION
We have described briefly all important aspects of Singapore's automobile insurance and pointed out those areas where Taiwan can really learn from Singapore. Because of the coordinated efforts among all parties which are concerned about Singapore's automobile insurance, Singapore's road accident rate has fallen greatly. This is even more remarkable when compared to the significant increase in the number of automobiles on the road. Morever, the number of people killed or injured in road accidents has also greatly reduced even though the number of vehicles on the road has increased significantly. Thus, it is not surprising that Singapore has one of the lowest road accident death rates in the world, despite its urban density. Finally, even motorists' complaints to GIA have fallen continuously throughout the years. Putting all these facts together, we can only conclude that Singapore's automobile insurance could serve as a good example for Taiwan to ponder over.
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