By Lorna Tan, Finance Correspondent

THE financial industry regulator yesterday urged insurers to be more prudent when drawing up motor insurance policies, given mounting losses in the sector.

It also urged them to handle the problem of inflated motor insurance claims more effectively.

Mr Low Kwok Mun, the Monetary Authority of Singapore's (MAS') executive director (insurance supervision), urged insurers to be more prudent in analysing and pricing motor insurance risk.

He was guest of honour at the General Insurance Association of Singapore's (GIA's) annual general meeting luncheon, which announced the re-election of Mr Derek Teo as president.

Mr Low's remarks follow a record motor insurance underwriting loss of $214 million last year, which was attributed to poor underwriting standards and inflated motor claims. He said the huge loss is a concern to MAS as motor insurance is the largest business segment - 30 per cent - of the general insurance industry here.

The loss has resulted in an increase in motor premiums, much to the chagrin of car owners.

Last year, the average motor premium shot up 15 per cent to $1,013, the sharpest in years.

This year, car owners can expect a further premium hike with major motor insurers like NTUC Income, American Home Assurance and AXA already indicating that they will raise rates.

To curb the incidence of inflated motor insurance claims, GIA introduced the Motor Claims Framework last June.

This requires motorists to report all motor accidents to their insurers within 24 hours.

The objective is to give the insurer the opportunity to conduct a survey of the damaged vehicle and to estimate the cost of repairs before it is repaired.

Giving his thumbs up to the framework, Mr Low said that this is an important and necessary step to minimise the possibility of inflated claims.

Still, he recognises that the cooperation of motorists is crucial in controlling claims costs and urged motor insurers to ensure that there are 'adequate incentives' for motorists to cooperate.

This would include processing claims effectively and ensuring that the repairs are done promptly. 'Insurers should provide a hassle-free process for motorists to have their claims paid and their vehicles repaired, regardless of who is at fault in the accident,' said Mr Low.

He also added that insurers have to do more to assure motorists that they have been treated fairly, particularly when it comes to settling claims against them.

He cited instances where insurers proceeded to settle third-party claims against their policyholders without further consulting the latter. This happened even though the insured had provided his account of the incident to explain why the claims were unjustified.

'It would also be helpful for insurers to liaise closely with their insured before settling the claims against them. In any case, insurers should not settle a claim against their insured just to avoid the potentially high legal costs but should seek to protect the interests of their insured.'

He suggested that if there are grounds to believe that the third-party claims have been inflated, insurers should, with the consent of the policyholder, aggressively pursue such cases through legitimate means.

General insurers were also reminded to be on guard against potential risks to their business.

In this regard, MAS is considering requiring general insurers to carry out regular stress testing exercises as a pre-emptive measure.

Currently, life insurers are required to do annual stress tests but not general insurers.

Such tests involve scenarios that could cause an insurer to face financial collapse.

On the up and up

• Last year, the total number of reported motor vehicle accidents rose by 17 per cent to 172,704.
• Personal injury claims nearly doubled - spiking 86 per cent to 16,174 last year.
• One in every five accidents reported last year involved injuries to drivers under 25 years of age, up 13 per cent from previously.
• Inflated claims remained a trend as claimants still fall prey to unauthorised tow truck operators and unscrupulous workshops.

This article was first published in The Straits Times.