Insurance companies in Singapore have lost three times more in motor insurance in the first quarter of 2008, than they have at the same time in 2007. They were still profitable in 2006. So what caused the big change? GIA Motor Insurance Statistics.

The Police has stopped handling non-injury motor accidents since 1999, so that should not be the reason for the sudden spike in insurance fees.

A quick glance at the Singapore Police Force website shows that there were 6,845 fatal and injury traffic accidents in 2004, and 8,323 in 2007. Quite an increase, definitely much higher than the population growth percentage. 94 motorcycle rider and pillion deaths in 2004, and 103 in 2007, close to a 10% increase. Drink-driving accidents have moved from 237 in 2004, to the high of 288 in 2006 and dropped to 188 in 2007 even though it had the high of 4,009 arrests. Traffic 2007 Overview.

The specifics have not really changed dramatically, but the overall situtation has seen an increase of 21% of fatal and injury traffic accidents. Of course, missing from the Traffic Police statistics are the non-injury accidents, which must have had a significant increase as wel.

The government adopted a policy of allowing more people in Singapore to fulfil their aspiration of owning cars by releasing more Certificates of Entitlements. This policy change might have been derived from interviewing Singaporeans emigrating, many whom cited the fact that they cannot own the car of their dreams as one of the factors for leaving. Of course, increased cars means more drivers are buying insurance, it should all even out, unless the quality of drivers have reduced.

The market situation that encouraged cars to be scrapped early also ensured that Singapore cars are mostly new and in good condition. The economy and sentiments were kept bouyant with the money generated by new cars being bought. The pros of this situation is that the air is less polluted, and there are less breakdowns. Newer cars are also better able to cope with emergency situations with brakes and steering in better conditions. The downside, however, is that it is very expensive for insurance companies to pay a claim against a newer car because it is worth more. If you own a third-party insurance, you are not paying your premium for your own vehicle, but for the vehicle you are likely to knock into. If the overall value of cars on the road rise, your premium will rise.

Has the population mindset changed enough that more people now have the “claim them for every single cent” mentality, as opposed to the old “I do not want any trouble” mentality? Anecdotally, I would think so. “Suffering a whiplash” to call for an ambulance, so that the accident is classified as an injury accident seems to be a favoured tactic. This allows the scope for claiming for medical costs as well as vehicle damage.

Owners also take the opportunity to upgrade their vehicles and workshops bloat the claims. It is not uncommon for them to claim $700 for a little scratch to a bumper that would take $70 worth of paint work. Here lies the conundrum that the insurance companies find themselves in. I would believe that the vast majority of motor vehicle claims, as well as medical claims, are below the $5,000 mark, and another large chunk are below the $10,000 mark.

Insurance companies are left with this difficult mathematical problem: Do they pay $700 of blatantly fraudulent claims, or pay $5000++ to their lawyers to dispute those claims? And so they all add up to $35,300,000 loss in the first quarter of 2008.

Foresight, anyone? The General Insurance Association, and the authorities must know very well that the most motor insurance claims are below the cost of opening up a case file with a lawyer. For them to ignore or overlook this reality is irresponsible. They need to work together to create a legal framework similar to the Small Claims Tribunal in the Subordinate Courts, to pursue legal actions against fraudulent claims without the need for lawyers.

Of course, there is the other side of this solution. Firstly, the need for more judges, but more importantly, because we, the customers, do not trust the insurance industry. We will fight tooth and nail if they resist paying out our claims. However, I feel that this is the best situation in the long run. A few workshops will be closed down for fraudulent claims and contempt of the courts, and the rest will tow the line. It is the most realistic solution, and hopefully can seperate the true claims from the fraudulent.

There is a conspiracy angle to this as well. More cars means more import taxes, and more mandatory insurance bought for them. The operating costs of owning a vehicle can shoot sky high, and still the authorities can say that we are now able to fulfill our dreams of owning a car. But the reality is this, those emigrating out of Singapore are dreaming of owning a BMW, not a Chery QQ.