Stephens Question: I HAVE been a loyal customer of my insurance company for over 10 years. I earn the maximum no claims bonus. The renewal notice for January 2001 was sent to me recently. The premium after my no claims bonus was $17,500. However, the company said because its minimum premium is $20,000 renewal was offered for this amount - not $17,500. This does not seem fair to me. Do you agree?
N.M., Kingston 10.
Answer: CONSUMERS ENTERING into non-life insurance contracts have a great deal of power. Few of them exercise it. They can change their insurer at renewal every year. They do not even have to wait until the policy expires. The insurance can be cancelled at any time. Persons with long-term [life] contracts do not have these choices. They are hitched for life! If you believe your insurer is being unfair, vote with your feet.
Many persons have raised questions about minimum premiums. I carried out a survey. Four out of 13 insurers were randomly chosen. The aim was to get a feel of what was happening with minimum motor premiums. The four companies controlled 69.7 per cent of the market based on 1999 statistics. Here are the findings:
All insurers in the survey have minimum premiums for motor policies.
Actual charges are dependent on whether the policies are comprehensive or third party.
Charges for comprehensive policies range from $15,000 to $20,000. The average minimum charge for this type of policy was $16,900.
The minimum charges for third party policies ranged from $10,000 to $15,000. The average minimum charge for a third party policy was $11,895.
Only one of the four companies differentiated between minimum charges for existing customers and new policyholders. Existing customers paid less than new customers. The difference between the two groups of customers for both types of policies was $5,000.
Where premiums fell below the minimum premium threshold due to the application of no claim or other discounts the minimum premium was charged in all cases.
The practice of your insurers seems consistent with other companies. On the other hand, their minimum premium of $17,500 was the second highest. This could probably mean that they are less efficient than other companies. Like most insurers in the survey they charge existing customers the same premium as new customers. This is where they have got their sums wrong. Preparing and issuing a policy to a new customer costs more than renewing an existing policy. To levy the same charge to both new and existing customers cannot be correct. Most persons in the industry know this!
I also spoke with an attorney at the Consumer Affairs Commission on the subject. Her view was that the imposition of minimum premiums could, in certain circumstances, be considered as a breach of contract. Let us assume you bought insurance for the first time. The premium was agreed at $17,500. You paid this amount. Three months later the company representative [or broker] says there was minimum charge. You are asked to pay an additional $5,000. This would constitute a breach of contract. It would entitle you to sue for damages. This is not what happened in your case.
Your insurer could be saying one of two things. It plans to introduce or is revising its minimum premium. The new minimum charge will become effective in January 2001. You are under no obligation to accept it. Do not remain a prisoner of your existing insurers. They are not interested in your loyalty. Examine other options. You could end up saving money.
Cedric E. Stephens is the founder of INSURANCE HELP-LINE, a telephone-based advisory service, and the co-host of Risky Business, a radio programme that deals with risks and insurance. If you need free advice write to The Financial Editor or Mr. Stephens at aegis@cwjamaica.com.
