The Financial Regulatory Authority (FRA) has released regulations for applying depreciation rates in motor insurance to achieve a balance between customers receiving fair compensation and market stability and curb disputes.
FRA Chairman Dr Islam Azzam said the rules require motor insurers to apply depreciation, up to a maximum limit, from the repair estimate for cars damaged in accidents, while allowing insurers the flexibility to determine depreciation rates within their policies, provided that the rates do not exceed the maximum limit.
According to the decision, the maximum depreciation rates are 2.5% in the first year, 5% in the second year, 10% in the third year, 15% in the fourth year and 20% in the fifth year and thereafter.
The decision also sets an amortisation rate of 25% for the first year for tires and batteries, with the maximum rate to be 50% after two years, in addition to applying a rate of 50% to parts that have rusted, as well as in cases of sanding resulting from road conditions.
Dr Azzam pointed out that economic changes and the rise in the market value of cars as well as the prices of used cars and spare parts are likely to lead to an increase in disputes between companies and customers, especially in cases where damaged spare parts are replaced.
He added that the decision minimises disputes by leaving the matter to be agreed between the insurer and the policyholder in accordance with the terms of the insurance policy. The decision allows insurance companies to require the insured to provide the damaged parts, such as spare parts, when requesting compensation. The prescribed depreciation rates are applied if the damaged parts are not provided.
The decision also requires insurance companies to amend insurance policy forms to comply with the new rules.