Does a monopoly exist in the motor market?

Cedric Stephens, Contributor

My friend owns a Toyota Coaster. It has a rural stage carriage licence. One company insured it for over five years. In May last year, that company advised him that they would only be offering coverage to PPVs with contract carriage licences. The risks posed by rural stage carriage operators, they said, were too high. Coasters were often involved in accidents. There were many claims from passengers. As a result, management decided not to offer coverage on these vehicles. His policy was not renewed.

Only one company now offers coverage. If that company were to decide to stop writing this class of insurance, operators would be forced to: a) sell their vehicles and find some other type of work; or b) break the law, operate without insurance and carry their own risks. Because there is now a monopoly, owners who obey the law have no choice but to pay whatever that company demands. Insurers should not be allowed to pick and choose for a coverage that is mandated by law. What do you think?

- C.G., Kingston 4.

Thanks for bringing this matter to my attention. I have no doubt about the accuracy of the information that you have shared. Like you, I am very worried about: the existence of a de facto monopoly; whether our 'rulers' are aware of the insurance-related problems that operators in your sector face and the implications for the rest of the society; and whether action is likely to be taken in the short or long term to resolve the underlying problems.

All three things are symptoms and are connected. I have alluded to them many times in the past. The last time was on March 4 when I wrote 'The absurdity of choice for bike insurance'.

The poor financial performance of motor insurers in Jamaica during the period 2000 to 2010 has reduced in the number of companies that offer this type of coverage. The combined operating losses of all insurers during this period amounted to over J$6 billion.

At least one company exited the market. Those that remained were forced to adopt a number of measures to stem their losses. Some of those things include price hikes, ditching high-risk customers, being very choosy about the persons, vehicles and businesses that they insure and imposing special conditions on the policies of some of the persons that they selected to insure.

Reasonable price

That combination of things has led to a situation where certain groups of persons or kinds of vehicles may find it virtually impossible to buy insurance at a price that they consider reasonable, if at all.

Given the state of the economy, these measures could also have the unintended effect of increasing the number of uninsured vehicles on the roads. If there is indeed a monopoly for transport operators with rural stage carriage licences, it probably developed by accident - not by design.

A report published in this newspaper on March 7 indicated that your friend's present insurer reported an underwriting profit of J$448.8 million on net premium revenue of J$4.2 billion at December 31, 2011. This compares with J$50 million on J$3.6 billion, respectively, in the previous year.

Claims expenses amounted to J$2.6 billion approximately at the end of last year as compared to J$2.4 billion in the year before. The report did not provide any details about how its motor portfolio performed generally or if it was making a profit on the public passenger vehicles that it insures.

Regulators in well-run economies recognise that imperfections occur in markets from time to time. They put measures in place to correct shortcomings.

Frankly, I would be most surprised if the Financial Services Commission, the finance or Transport ministries have made the link between their respective missions, these developments in the marketplace or are aware of the implications if they continue to do nothing.

The first step in devising solutions, in cooperation with providers, begins with the recognition that problems exist.

Insurance companies exist to accept risks and, at the same time, create profits for their shareholders. When the conditions are such that reasonable returns are not possible over time, companies have the right to decide the conditions under which they will remain in business. Unfortunately, I do not have an answer to the problem that you have posed.

The solution is way above my pay grade! I looked in the PNP election manifesto to see if it could provide some clues where help could be found but alas, I found zilch.

Cedric E. Stephens provides independent information and free advice about the management of risks and insurance. Send feedback to aegis@cwjamaica.com or SMS/text message to 812-7233