While motor is a challenging line of business in many markets, Jordan has recently seen this low-margin, high-volume sector make headlines, with many insurers sug-gesting that without changes to this segment, the industry as a whole could suffer greatly. The contro-versy surrounds compulsory, third-party liability insur-ance (TPL), yet it also highlights the challenges in the segment overall – a fiercely competitive market local-ly, and a dominant one in terms of premiums.
CENTRAL ROLE: Preliminary figures from the Insurance Commission (IC) for the first three quarters of 2012 show that motor accounted for $225m in gross premiums, or 41% of the sector total – life and non-life combined – of $549m. Gross claims for the period, however, were $204m, out of a total of $371m, or 55%. At the same time, the Insurance Dispute Resolution Committee reported for the first nine months of 2012 that 83% of all complaints registered with them came from the motor segment. Thus, motor trade shapes the market, with high claims, a disproportionately large number of complaints and small margins. In addition, insurers with non-life businesses are legally obliged to offer TPL. Thus, given that the sector contains 26 firms that are either pure non-life or composite life and non-life com-panies, the challenge seems even starker.
TARIFFS: Complicating matters has been the fact that the state has long set the tariffs for compulsory TPL. As in many countries, this type of insurance has also been much cheaper than the other motor option, com-prehensive cover. Indeed, in early 2013, the Jordan Times suggested current TPL rates were between $100 and $170, depending on the vehicle type.
In recent times, the IC has allowed companies to penalise drivers with a bad history by setting the TPL rate higher than the fixed price for them, yet many insur-ers say that the rates are still not high enough for them to make a decent profit. Indeed, the losses that result, many suggest – including the Jordan Insurance Feder-ation (JOIF) itself – are endangering the sector as a whole. JOIF’s president, Othman Budair, told reporters in January 2013 that the sector would record losses of $30m for 2012, mostly as a result of low TPL tariffs.
The IC has taken this issue on board, however, decid-ing in March 2012 to liberalise the TPL market by with-drawing the fixed tariff. This would allow the price to float and find its own market level, with companies free to compete on price and services to gain business.
A date of January 1, 2013 was set for this liberalisation to begin, yet this did not occur, as firms continued to make presentations, while the political uncertainty of the time – parliament was dissolved in the run-up to January 23 elections – left no mechanism for passing a new regulation. A new date for implementation of March 1, 2013 was also proposed and then passed without a decision. In April 2013, Jordan’s Consumer Protection Society declared that TPL liberalisation would not serve the interests of consumers and rejected the existing proposals for liberalisation. However, at time of press the debate did not appear to be settled.
LIBERALISATION: While some see liberalisation as a step forward, others see it as presenting challenges.
There is concern that the technical infrastructure is not in place for insurers to be able to undertake their own price setting for TPL, which might lead to further insta-bility. There is also concern that firms in financial dif-ficulties might set prices below sustainable levels to attract business and meet short-term cash flow needs.
This would lead to price competition and potentially fur-ther losses, even for financially sound firms. Rather than abandon tariff setting altogether, some insurers therefore argue the IC should set a higher one.
Few would dispute that, whatever the outcome, TPL tariffs are likely to rise, and perhaps even double. This will not be popular with many consumers, especially at a time of price increases in other areas, due to the rolling back of government subsidies. Yet addressing the lack of profitability in motor is clearly a pressing issue. Many hope that the new parliamentary term will see progress on this, as well as a more sustainable level of TPL for both Jordan’s motorists and insurers.