Wednesday, December 21, 2005

Drivers exploited by high insurance costs :: Emirates Today

Companies in the UAE are charging more than they are legally allowed for car insurance, thereby encouraging many drivers to take to the roads uninsured.

Some companies are raising the cost of insurance despite a federal law prohibiting them from charging more than five per cent of the value of the vehicle.
"Exploited" is a word for the editorial page, not the news page.

These appear to be the facts: Some insurance companies decline to insure some kinds of automobiles at the legal maximum premium of 5% of their value. They either quote a higher rate, or do not offer insurance those kinds of cars.

Some things are not clear from the news report. Is it legal for a company to refuse to quote? If - as the article suggests - insurance companies are making profits, what are the conditions of entry into the market? And who determines what the value of the automobile is?

The more plausible storyline for this article is that the 5% limit on premiums is so low that for some kinds of automobiles the numbers of car owners seeking insurance is more than the insurers are willing to provide. In short, there is a shortage created by a government imposed price ceiling.

Why are insurers willing to charge 5 percent or less for some cars and not others? Because not all cars are created equal and some cars are more likely to be driven by drivers with poor driving records. Some cars are more expensive to repair per dollar of value (one example would be older cars). And we can all name cars that are favored by reckless drivers.

Emirates Today is asking insurance companies to bear the costs that some consumers create by choice of the kind of car they purchase and the way they drive it. Who is exploiting who?

Aside: In the quote above it is stated that some drivers are choosing to go uninsured. Note that when an uninsured driver is at fault in an accident the other driver is harmed twice - by the inconvenience of the accident itself and the hassle created because the uninsured driver is uninsured. Unfortunately, there is really no good solutions to uninsured drivers unless you are willing to adopt severe penalties for driving uninsured.

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Blogger sheikha cheryl said...

I'm sure this doesn't include motorcycle insurance which is a real trick to get here. A certain owner of a local motorcycle shop has said it is because the local population will buy bikes, insure them, crash them and get reimbursed for the full cost of the brand new bike, and start the process over again.

Agreed: "Exploited" is a word for the editorial pages.

Also, are the uninsured drivers, not registered as well? I can't register my vehicle unless it is insured. -DB

5:45 PM  

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