Safety measure: Car owners less inclined towards insurance

Survey finds 78% cars in the country are not insured.

KARACHI:

In spite of frequent cases of vehicle theft and snatching in the country, most of the car buyers seem uninterested in getting their vehicles insured – a mandatory condition for the owners aimed at protecting them from heavy losses in case anything untoward happens.

According to a survey conducted by Pakwheels.com and YouGov, an overwhelming majority of cars (78%) running on roads are not insured. Only 1,070 (22%) say their cars are insured.

Enumerating the reasons, Atif Zafar, auto sector analyst at JS Global Capital, said a major factor behind the small number of insured cars could be low penetration of insurance companies and lack of access to smaller and remote towns. In addition to these, he said, a large number of Pakistanis considering conventional insurance as unIslamic and lack of customer knowledge were also among the top reasons.

“While the survey shows car insurance trend going in the right direction, the 22% insurance level is a little bit uncomfortable,” he said. “I think this should be around 40% to 50%.”

Size of private insurance industry

The country’s private insurance industry is too small with total premium-to-gross domestic product ratio standing at just 0.3%.

According to the Insurance Association of Pakistan, it has 38 member companies with a premium of Rs66 billion until 2011. Of these, 32 are non-life insurance companies with premium of Rs43 billion and six are life insurance companies with premium of Rs23 billion.

Among the 1,070 who have insured their vehicles according to the survey, 32% say they have either taken insurance cover from Adamjee or EFU Insurance having 17% and 15% share respectively.

Most of these chose Adamjee and EFU on the recommendation of friends and family members, who had experienced the services of these companies.

The remaining 68% say they have chosen one of the following companies – Askari General Insurance (8% share), Takaful – Islamic insurance (7%), IGI (6%), New Jubilee Insurance (5%) and TPL Insurance (4%). Among these, a whopping 37% either do not remember or did not provide their insurance company’s name.

Talking to The Express Tribune, an officer of EFU General Insurance claimed that the company enjoyed a share of over 50% in the auto insurance market.

“People are increasingly realising the importance of car insurance. Though it is difficult to give exact percentage growth in auto insurance annually, one can safely say car insurance is getting popular,” he added.

He pointed out that most of the new car buyers get insurance at the time of purchase, adding many purchasers of used imported cars were also taking insurance cover.

Insurance companies describe those who buy new vehicles from a company dealer as ‘informed customers’. To target them, the companies collaborate with car manufacturers and succeed in bringing most of the car buyers under insurance cover.

Annual premium

Insurance companies collect annual premium from car owners at the rate of 3% to 5% of the current value of the vehicle. However, contract details may vary from company to company.

For instance, if a car is worth Rs1.5 million, at a premium of 4%, the owner needs to pay Rs60,000 annually to the insurance company.

High risk

High risk of theft, snatching and damage to new vehicles in big cities has also prompted car owners to go for tracking services. To take advantage of this, many leading insurance companies offer such services along with insurance with some additional charges.

An officer of Adamjee Insurance told The Express Tribune more people were realising the fact that a car without insurance was a big risk, especially in cities like Karachi where risk factor was one of the highest in the country.

Industry officials say one of the biggest risks to new cars in Karachi is theft, especially when a car crosses the city’s limits and enters smaller cities of Sindh and Balochistan.

However, this proves a blessing in disguise for the car insurers in big cities as more people tend to take insurance cover to protect their vehicles.

In coming months, two factors are expected to aid car insurers. One – the domestic auto industry is about to regain historical production figures of over 180,000 units per annum after a long wait of five years. Two – the import of used Japanese cars has surged as the country imported over 55,000 cars last year.

Published in The Express Tribune, September 10^th, 2012.