The latest body blow to insurers was the award of a B$3.6m ($2.4m) accident compensation payout to a nine-year-old boy injured in a car accident in 2000. The child was of Nepalese origin but now lives in the UK and under Brunei law the court was obliged to take into account living costs in the UK, despite the fact that the premium paid was in Brunei dollars. Many motor insurers are now arguing that insurance premiums are out of kilter with the claims now possible, with some industry insiders warning it is just a matter of time before an even greater award is made.
The B$3.6m award, which is a record for countries belonging to the Association of Southeast Asian Nations, has highlighted a wider crisis within the insurance industry, which saw third-party claims increase from $6.8m to a little over $20m between 1994 and 2004. Meanwhile, much to the dismay of insurers, awards of around $1.4m have become quite common. With many expatriates living in the sultanate, the fears of the insurance industry appear well founded. Brunei has some of the lowest motor insurance premiums in the world and in the case of this latest record payout; the claimant was covered for unlimited bodily injuries by an annual premium of just $67.50, compared to the lowest premium available in the UK of $607.50.
The total industry volume for motor insurance is about $34m. New legislation introduced in 2006 requires companies to have total paid up capital of $5.4m. Companies that were already feeling the squeeze are now even more pessimistic about the future.
According to Paul Kong Thye Wei, vice chairman of General Insurance Association Brunei (GIAB), insurance laws in Brunei require motor insurers to purchase re-insurance, which is likely to see a rate rise as a result of the growth in claims. In most countries higher premiums from the re-insurance industry would be passed on to the policyholders. In Brunei, however, motor insurance tariffs are regulated by the ministry of finance, leaving insurers somewhere between a rock and a hard place. Under the present system the worst-case scenario would be a failure of local companies to meet their obligations and the possibility that the international re-insurance market will no longer support the local industry.
If the current trend of rising payouts continues, there is likely to be a significant shake out of the weaker players in the industry. One company has been confirmed as having recently been placed under the executive management of the ministry of finance after failing to meet the solvency requirements for insurers. Such conditions are also conducive to a greater level of consolidation as larger companies holding greater financial reserves will be in a better position to weather the storm and remain competitive. Motor insurers have said the tariffs are grossly inadequate and argue that without a change in the tariff regime, the industry will simply become unprofitable.
The GIAB is now in discussions with the ministry of finance over the creation of a new motor insurance tariff regime. One possible solution would undoubtedly be a different tariff regime for foreign nationals.
The lawyers who represent plaintiffs have said the insurance industry is exaggerating the difficulties it faces, arguing there are more cars on the road and therefore more premiums available. It certainly appears that contingency fee rules introduced in 1994 to give greater protection to claimants have resulted in more personal injury claims. This may be due in part to the fact that the law allows claimants to split rewards with their lawyers, which has sparked a US-style no-win-no-fee kind of personal injury industry allowing many people to sue for damages without financial risk.
Annual claims have increased from just 10 claims in the year before the rules were introduced to more than 150 in 2004. Another factor cited by lawyers is that the general public are now more aware of their legal rights when it comes to personal injury claims.
The issue that underpins the current crisis, however, has been the toll that Brunei's traffic safety record is taking on the industry and this has led many industry insiders to call for action from the government to improve road safety. While the rate of accidents to vehicle population has decreased by 2% since 1994, the percentage of accidents that result in either death or serious bodily injury remains worryingly high with 25% of all accidents resulting in such an outcome. The GIAB has argued further government action to reduce the number of accidents would significantly reduce the burden on the industry.