Sometimes, I am asked: How come others pay comprehensive motorcar insurance premiums lower than mine?
Underwriting factors have a lot to do with it.
In more advanced countries, motorcar insurance premiums are determined according to several underwriting factors such as the age of the driver, the number of years of driving experience, the residence or place of work where the vehicle is parked, the usage of the vehicle whether it be for commercial or for family use.
In the Philippines, however, because of the absence of reliable government data, most motorcar insurance underwriters are limited in evaluating premiums.
Typical underwriting considerations would be the availability of covered parking for the vehicle versus street side parking, the age of the vehicle and the location of the residence.
But there is not much to go on when it comes to driving habits, specifically the number of accidents and traffic violations of the driver.
In particular, the claims experience of a driver is not shared by one company with another. So if a carrier won’t renew your car insurance because of the frequency of traffic accidents, you can jump to another company and they will accept you with open arms and even lower your premiums.
Although traffic violations are a critical factor in evaluating premiums because a reckless driver would always file claims or even seek coverage for the total loss of a vehicle, insurance companies have to cope with the lack of access to government data.
The insurance company needs to be careful with the selection of risks because high claims may eventually result in its bankruptcy.
The concept of insurance is risk sharing whereby a group of people would pool money together, in anticipation that a minority of them will get into an accident every year. If the accidents are too frequent, the premiums will increase and become unaffordable.
The key in finding the right insurer is not to go for the cheapest. There are too many horror stories of cheap insurance firms that do not pay claims. You need to make sure the company is financially viable and has a good reputation for paying claims properly, without hassle and on time.
Ask the managers of auto repair shops who will readily tell you which insurance companies delay payments to them. That’s a sure sign of trouble.
You can get cheaper insurance if you are part of an organization or a corporation. The insurance company can make a more accurate assessment of the claims experience and the driving habits of the group, thus allowing them to lessen the provisions for claims. This consequently leads to lower premiums.
The Automobile Association Philippines (AAP) made such an arrangement with a panel of insurers for the motorcar insurance needs of members. These companies have discovered that in general, AAP members have good driving habits, are concerned about safety and avoid accidents.
The lower claims experience led to more discounts in premiums and therefore the premium rates being given to AAP members is one of the lowest and most reasonable in the industry today.
Which is another reason why you should join AAP, if you’re not a member yet.