The new Unified Motor Policy introduced from 1 January 2017 is said to have raised the cost of motor insurance in the UAE by as much as 30-40%, while loss ratios were seen to drop to roughly 65-75% in FY17 from 80-90% in FY16, according to a report on the impact of the policy.
Apart from higher tariffs, several other factors were active contributors to improving loss ratios for motor insurers in the UAE in 2017. The report, produced by Insurance Monitor in association with Badri Management Consultancy, highlighted that these factors included the role of the Federal Traffic Council in increasing road safety awareness and introducing the new traffic law from 1 July 2017, as well as the reduction in the number of road accidents by 16% and speed violations by 11% in 2017.
The report also added that loss ratios were lower than expected in 2017 due to the transition of unexpired 2016 risks that would benefit from the Unified Motor Policy only on renewal in 2017. Favourable weather conditions and poor consumer awareness of new policy benefits were also positives for insurers in 2017.
Top line growth
Following the introduction of the Unified Motor Policy, insurers were broadly seen as risk-takers who captured market share by offering minimum tariffs, or risk-averse entities who offered rates starting with the median or 75th percentile or even the maximum tariff in some vehicle categories.
Towards the end of 1Q17, the former had exceeded their budgets by large margins while the latter were down in terms of policy count but content that the top line was maintained with modest growth and lower exposure.
As 2017 progressed some risk-averse insurers were seen to reduce prices slightly and offered lower rates to certain segments. On average, the cost of motor insurance in the UAE is said to have surged by as much as 30-40% in 2017, while owners of lower valued vehicles buying third-party and comprehensive insurance were hit the hardest, due to the increase in minimum premium.
The year 2017 was the second one when detailed mid-year pricing reviews on motor insurance were undertaken as a regulatory requirement. Unlike other regimes where insurers have to use actuarial pricing as a minimum, in the UAE, insurers have flexibility with pricing. While bi-annual actuarial pricing reviews are undertaken, decision-making in terms of pricing remains with insurers, who are monitored and also held accountable. This flexibility enables healthy competition where underwriters can target niche segments without limitations on rates provided in the actuarial pricing report.
Towards the end of 2017, insurers were increasingly seen to shift away from unit or flat rates to factor-based pricing that would help them to target certain profitable segments. As the year progressed, the actual claims were seen to be ‘lower than expected’. Actuarial pricing reviews undertaken for 2017 indicated that motor loss ratios dropped to roughly 65-75% from 80-90% in 2016 where combined ratios of some insurers exceeded 100%.
Motor insurance outlook for 2018
In 2018, the report expects competition to force prices down again. Feedback on breach of minimum thresholds by insurers has not been uncommon. The Insurance Authority has permitted some flexibility on rates in 1Q18 in terms of no claims discount for retail customers (up to 30% off for three accident-free years) and additional discounts (up to 10%) to loyal customers. The discounts are specified as a percentage of the minimum premium and for no claim discounts can apply where the driver had not caused the accident.
It is also expected that motor loss ratios will continue on the low side in 2018 as all insured parties had fully transitioned to the new motor benefits policy from 1 January 2018 at higher minimum premiums. M