Motor Insurance: Firms offer rock-bottom prices to attract vehicle owners

Rock-bottom insurance prices

Catastrophic crashes such as this can be costly for insurers since automobile insurance costs have fallen sharply and are expected to stay there for some time l Image Credit: Karen Dias/Gulf News archive

Dubai: Don't wait around for motor insurance rates to drop. They are already at their lowest levels in the UAE and have been so for some time. The best car insurance.

Rates are currently available at 3.5 per cent to 4 per cent (of the value of the vehicle), offering cheer for the insured and outright dismay for the insurer. Even then, prospects for a sudden — or even gradual — firming up of these rates are considered remote. The ideal rates, at least from an insurer's perspective, would be between 4.5 per cent and 5 per cent.

The situation was brought about by the double-whammy of a sharp decline in new vehicle sales during 2009, which in turn forced local insurers to slash their rates to get as much of the business that was available. According to industry sources, new vehicle sales were down by as much as 25 per cent to 30 per cent in 2009. Also, of the sales made during 2009, a sizable portion was backed by heavy discounts as dealerships tried to move stocks out of their books.

Panic button

"At the beginning of 2010, the majority of motor insurers hit the panic button and started feeding rates of 3.5 per cent to 4 per cent into the market," said Mustafa V., who heads Gargash Insurance Services. "The impression was that only by competing on rates would they be able to get the volumes. It's actually bleeding the insurance industry."

While 2010 represented a major turnaround in the fortunes of the local automotive market, most estimates place year-on-year growth in new vehicle sales in the high double digits, motor insurance rates remains stuck in the recession-induced low digits.

Industry sources also point to the high number of players in the market offering best car insurance. "Some of them, especially the Takaful insurers, are purely going for the motor related volumes, with profitability of what it entails very much a secondary concern," said a senior official with the local office of an international insurance major. "Prudent underwriting parameters no longer seem to be in favour."

As long as accident-related claims remain within certain bounds, motor insurers can still squeeze out some profitability or limit their losses. But there's no knowing how claims will stack up in a year. According to government sources, the number of fatalities on local roads have recorded a sharp drop during 2010, but there's no data available on the number of accidents and how much this has cost insurers.

Major headache

"Moreover, the non-availability of drivers' records, with the exception of Dubai to an extent, is a major headache for motor insurers," said Mustafa. "What happens as a result is that bad drivers get access to the same low rates as the good ones in a "one size fits" all kind of situation."

Efforts were made as recently as in 2007 and 2008 by insurers to rewards drivers with a good track record and penalize those who didn't. It's interesting to note that this coincided with the peaks in the local economy fuelled by activity in the real estate and construction sectors.

Will this encourage you to buy a car? Or do you think it is too expensive? What main factors do you consider before buying a car?

Source: Manoj Nair, Associate Editor,