Accident-free motorists to enjoy cheaper car insurance rates

Vehicle owners will from this month enjoy discounts on their insurance premiums based on their driving record, according to new industry rules which reward motorists for keeping a clean driving record.

Motorists who report no accident over five years will enjoy a 50 per cent discount on the next annual premium renewal, while those with fewer claims than the previous year will be entitled to a lower cut from March 1.

The Insurance Regulatory Authority (IRA) said the industry would keep records of motorists’ driving history under the new model meant to reduce the loss ratio and motivate motorists to be more careful on the roads.

Discount levels

The Association of Kenya Insurers (AKI) will work out the calculations on discount levels for every motorist on behalf of the insurance companies and issue a certificate indicating the level of discount motorists are eligible for.

“Motorists renewing their insurance cover should request to see the certificate from AKI to be sure what discount they are entitled to,” said Mr Sammy Makove, the IRA chief executive.

The new model sets the maximum cost of premiums for private motor vehicles to 7.5 per cent of their value, almost double last year’s rate of four per cent.

First time motorists will pay the maximum rate of 7.5 per cent because they do not have an insurance history but for those with clean records in the last five years will pay 3.8 per cent of the car value as the annual premium.

This means that the owner of the a car worth Sh500,000 and who has not made any claim in the last five years, would be entitled to a discount of 50 per cent, making the annual payment 18,750 instead of Sh37,500.

Motorists will earn a 10 per cent discount for each accident-free year, capping the maximum discount offered to 50 per cent for private cars and 30 per cent for commercial vehicles over five years.

Some insurance companies had taken advantage of motorists ignorance, charging the 7.5 per cent premium when the model came into force on March 1 without giving discounts.

Motor insurance buyers are required to ask their agents, brokers or underwriters to show them the Certificate of no Claim Discount issued by AKI before making any premium payment.

The new model was introduced by the IRA last month, after a standard rate of five per cent of vehicle value as a premium for commercial vehicles and four per cent for private vehicles brought about in 2005 resulted in “alarming losses” for the industry, said IRA.

In 2008 for example, the loss ratio for private motor vehicle insurance was the highest for the industry at 84 per cent — meaning that Sh84 was paid as claim for every Sh100 received as premium— way above the industry breakdown that allocates 50 per cent to claims, 30 to management and 10 each to agents and shareholders.

The high loss ratio has been a threat to the financial stability of insurance companies because motor insurance business accounts for a substantial per cent of total general insurance industry premiums.

Motor business in 2008 accounted for Sh15.4 billion of the general insurance valued at Sh36.8 billion, which is equal to 41.8 per cent.

The high loss ratio is partly blamed on fraud, which is estimated to account for 40 per cent of claims.

AKI recently started implementing an industry-wide automation system to help to ease fraud in the business by enabling real time online data sharing.