Motor Class Of Business
This answer is based on Sanlam General Insurance, Sanlam is a diversified financial services provider with an extensive product offering catering for all market segments. The Group has consistently grown its local as well as an international footprint – it now has a presence in more than 10 African countries, India, Malaysia, Philippines, the UK /Ireland, the US, Switzerland, and Australia with her headquarter in Cape Town South Africa.
Sanlam is one of the 50 largest internationally active insurance groups in the world with a presence in 44 countries in 2018. Through Sanlam Emerging Markets, Sanlam has the most extensive insurance footprint in Africa. The Sanlam Emerging Markets Cluster is responsible for Sanlam’s financial business services in emerging markets outside South Africa with the aim of ensuring sustainable delivery and growth across the various businesses that make up this cluster. As part of the Group’s vision, it strives to lead wealth creation in those markets. Sanlam Emerging Market has businesses in Botswana, Namibia, Malawi, Kenya, Tanzania, Zambia, Ghana, Nigeria, Uganda, India, and Malaysia and has an indirect presence via our associate companies in The Gambia, Mozambique, Rwanda, Burundi South Sudan, Lesotho, Swaziland, and the Philippines. (Sanlam Brief Historical Overview)
This assignment will focus on Sanlam General Insurance (U) Ltd one of the leading insurers in the Ugandan market, according to the preliminary 2018 industry report by the Insurance Regulatory Authority of Uganda, Sanlam general stands at position number 3 with a gross written premium of UGX71Billion enjoying 12.54% of market share compared to the previous year 2017 when M/s General recorded a gross premium of UGX 28,836,696,000/= enjoying 5.68% of market share.
The company provides Person lines, Business, and Institutional insurance, and a range of classes of business under each of these sectors.
Lloyds define a class insurance business as:
A description of a type of insurance or reinsurance business based on the risks being covered. The Lloyd’s market underwrites eight main classes of insurance and reinsurance business: reinsurance, property, casualty, marine, energy, motor, aviation, and life. Each of these main classes consists of a number of sub-classes. In accordance with PRA rules, all business written in the life class is written by separate life syndicates and the premium is held in separate premium trust funds.
This assignment will focus on a motor class of business which is of the classes of business offered by Sanlam General (U) Ltd to both personal line and Business clients. All the products around this class are designed to provide comprehensive vehicle coverage in event of physical loss and/or damage to a motor vehicle resulting from accidents, fire, or theft and the legal liability of the vehicle owner or driver locally known as third -party liability in terms of public injury or damage to property.
Identification of one significant class of business currently underwritten
As stated above, motor insurance is designed to provide cover against losses arising from physical damage or loss to the registered motor vehicles resulting from accidents, fire, or theft, and the legal liability of the vehicle owner or driver commonly known as a third-party liability in terms of public injury or damage to property.
In 2017 non-life insurance market registered a Total premium of UGX 507,246,065,321/= with UGX 129,100,946,000/= being industry motor premium making it the leading class of Insurance in Uganda contributing approximately 25.45% of the Total general business premium with a loss ratio of 34.22% and an underwriting result of approximately UGX 13,978,322,000/= Sanlam contributed UGX 63,247,063,000/= of the Total industry general insurance premium.
While in 2018 the industry registered a gross premium of UGX 569,965,099,454/= for general business and Sanlam contributed Ugx 71,489,962,889.74 towards the Total industry premium. Motor contributed Ugx 19,693,815,678.00 of Sanlam general’s total premium in 2018, motor contributed 27.55% of Sanlam’s total premium in 2018 making it the leading class of insurance underwritten by Sanlam general. From January to June 2019 Sanlam has written a total premium of UGX 45,229,511,180, motor contributing Ugx 12,943,794,889.74 making it 28.62% of the Total premium for 2019.
Sanlam General Insurance (U) Ltd splits the motor offering into three main categories: Motor comprehensive, a motor third party which covers both personal and business category of clients, and the motor trade is specifically designed to cover losses arising from physical damage to motor vehicles held in stock and customers’ vehicles worked upon, legal liabilities arising from the use of such vehicles and damage to premises and contents. The motor trade is a packaged policy, the risk location is normally determined by the location of the insured’s business.
The motor vehicle insurance Act 1989 of Uganda requires that every vehicle on the Ugandan roads must have third-party insurance against accidents causing death or bodily injury to Third parties. Sanlam provides both mandatory third party with a limit of Ugx 1,000,000 per person and Ugx 10,000,000 in aggregate as per the low however they also provide enhanced cover depending on client’s requests. (Motor vehicle insurance /third party risk Act 1989’ of Uganda)
Motor Comprehensive: is designed to cover both personal and business vehicles (fleet) in event of physical loss and/or damage to a motor vehicle resulting from accidents, fire or theft and the legal liability of the vehicle owner or driver locally known as third -party liability in terms of public injury or damage to property. Third-party liability limits and the comprehensive or enhanced cover is higher than mandatory third-party liability limits and it extends to cover third party property damage as well. (Sanlam General Insurance (U) Ltd)
Enhanced third party can be given on a stand-alone basis or with motor comprehensive. The products are distributed through various dedicated distribution channels like direct/outlets and agents, brokers, binders, and through technology.
Despite increased cases of fraudulent motor insurance claims in the country, insurers have responded differently and motor insurance is still more profitable at Sanlam and the entire Ugandan market.
A brief explanation of the underwriting policy for this class of business.
Underwriting is the selection of risk. It’s a process of evaluating and analyzing the risk and exposures of the potential clients and deciding how much coverage the client should receive, how much premium they should pay for it, or whether even to accept the risk and insure them. (C11 Principles & Practice of insurance).
Underwriting essentials C120
Underwriting involves measuring risk exposure and determining the premium that needs to be charged to insure that risk. The function of the underwriter is to protect the company’s book of business from risks that they feel will make a loss and issue insurance policies at a premium that is commensurate with the exposure presented by a risk.
To ensure that Sanlam General Insurance (U) Ltd is not too heavily exposed to claims arising from Motor insurance, certain underwriting policies/criteria have been set to guide underwriters. The policy is tended to capture and address underwriting factors related to particulars of the proposer and details concerning the motor vehicle/subject matter of insurance with consideration of technological advancement and development in distribution methods.
New simplified proposal forms: Simplified proposal forms have been introduced to capture key information about the proposer and motor vehicle and key things to be captured are, Age of the proposer, name, and address of the proposer, details of the motor vehicle, whether any insurer has ever rejected a proposal from the proposer for insurance, the use of the moto vehicle is also fundamental in determining the premium to be charged.
Age and driving experience of the proposer: In Uganda, it’s by law that in order for someone to drive a motor vehicle on Ugandan road must hold a driving license/permit, and permits are only issued to those who have reached the age of 18 years. Sanlam General designed their policy in such a way that any person who drives the vehicle with the owner’s knowledge including the owner of the vehicle has to be above the age of 18 years and must have held the driving permit for at least two (2) years. This helps to determine the maturity of the driver because experience has shown them that young and inexperienced drivers are prone to claims hence, they’re subjected to additional excess/deductible of an extra 5% of the claim amount on top of the normal policy excess.
Previous motor accidents of the proposer: Although this information may be misleading Sanlam’s underwriting policy puts much emphasis on the previous motor accidents of the owner of any person who with the owner’s knowledge will operate the vehicle. This helps them to forecast and draw up the risk profile of the proposer and decide on the scope of cover and terms to be offered to the proposer if they’re to be taken on.
Name and address of the proposer: For any contract to be completed names of the parties must be correctly specified and check with a database indicating previous insurance experience and blacklisting, the proposer might be in the list of those who are blacklisted by some country because of their criminal records. The address of the proposer helps them know the geographical area where the vehicle will be operating so that appropriate premium is charged after identifying associated losses and cost of claim processing in a certain geographical area. Part of the policy reads “any vehicle operating outside Uganda but within East Africa is subjected to 20% premium loading on the standard normal rate of the category where the vehicle belongs”. And jurisdiction is the law of Uganda to avoid incurring extra costs and using laws with which they are familiar.
The particulars of the motor vehicle: The basis of indemnity in the market is either market value or agreed value where the vehicle is valued by a professional valuer before the inception of cover and the cost or indemnity differs depending on the type of the vehicle. Sanlam took a deliberate move to make it an underwriting policy to charged a slightly higher excess on all vehicles except Toyota and Nissan because of their high cost of indemnity most especially when there’s partial loss. This decision was reached after analyzing claims experience and cost of repairs for vehicles like BMW, Mercedes Benz, and the like. Since they’re very few in the country their cost of repair is very high compared to Nissan and Toyota whereby it’s easy to repairs and even new ones in case of a write-off.
As part of Sanlam’s underwriting policy, all motor vehicles for direct clients must be inspected by the underwriter mainly checking whether the particulars on the logbook tally with what’s on the motor vehicle and also the physical condition/ appearance of the vehicle.
Use of the vehicle: Vehicle use is divided into categories of private own use, private company use, light commercial, tour and travel, heavy commercial, and each category attracts different rates and policy excess. This is because the use of the vehicle tells the underwriter how much the vehicle will be traveling, it guides in determining depreciation rate in the unfortunate event when indemnity is being considered.
Details of the previous insurance: This helps the underwriter know the attitude of the proposer or any person who will be driving the vehicle with the proposer’s attitude and behaviors towards insurance. If their proposal for insurance has ever been rejected by an insurer the current underwriter would like to know why. It could also be that they’ve never been insured before and yet they have been owning vehicles for long then there’s needed to know what has motivated them to join insurance maybe there’s something they’re targeting. If they have been insured what’s their loss experience all these help the underwriter to decide whether to take on the client or not and if they’re to take them on what terms.
Conrad,A.,Mostert,F.J., &Moster,J.M.(2009). The underwriting process of motor vehicle insurance. Corporate Ownership & Control, 6(3-1),239-246. http://doi.org/10.22495/cocv6i3c1p7
Analysis of four ways in which market competition affects the underwriting policy.
In Uganda they’re 21 general insurance companies all of them underwriting motor policy, once a product is developed by one insurer and it seems to be appealing in the eyes of customers other insurers copy and adjust few things so that it looks more superior in the eyes of the customers and the market.
Sanlam general has a team in the business development and strategy whose major role is to monitor and keep track of their competitors and their new products like the motor guard and motor guard extra with their promise to clients “we insure it in the right way” is the slogan used by Sanlam general locally meaning if it’s not with Sanlam it’s not right. And the new slogan has helped them gain traction from the public and prospective clients.
Competition has a big influence on the underwriting policy and strategy in order to cope with the market competition Sanlam pays more attention to their internal process, internal data, and customer experience. Below are some of the ways in which competition has affected Sanlam’s underwriting policy.
Difficult in getting details of previous insurance: History of previous insurance of the proposer is very important in understanding the history and attitude of the proposer towards insurance and charge an appropriate premium for the risk being considered. Like any other market, Ugandan market competition has made it difficult for Sanlam general (u) ltd to obtain this information from the previous insurer however their proposal form is drafted in such a way that the prospect is required to provide this information to the underwriter hence they are able to judge whether a business should be rejected or accepted and if it’s to be accepted on what terms.[bookmark: _Hlk15661512]Ignoring Age and driving experience of the proposer: Because of competition and pressure for closure of business and growing top line, sometimes underwriters ignore age and driving experience of the prospect by treating them like any other proposer and charging the same rate across with standard policy excess as long as the vehicle falls within certain category within the minimum rate. The insurance market in Uganda is regulated by minimum rate, the only way to create a common pool of homogeneous risk is by adjusting policy terms and policy excess so that young and inexperienced drivers are aligned to other mature and experienced drivers so that the pool is homogeneous however competition has made underwriters to ignore this factor at times. However, Sanlam general took a deliberate move to use their internal data and claim experience to adjust their policy condition and excess.
Part of the excess reads “young/inexperienced drivers are charged additional 5% of claim amount on top of the normal policy excess”. Where young and inexperienced drivers mean those below the legal age of 18 years and those who have held driving permits for a period of fewer than 2 years. Even though the competition has failed to adapt to this policy condition Sanlam insist on having this condition to help them manage claims.,
Lack of standard database to obtain Name and details about the proposer: For any contract to be completed names of the parties must be correctly specified however there’s no standard database where details indicating the previous insurance experience, claims experience, credit history, and attitude of the proposer towards insurance however competition has made insurers to be selfish with the information whereby no insurer is willing to share details of their clients so insurers end up depending only on the information provided by the proposer on the proposal form only to realize when they have been hit by huge fraudulent claim or non-payment of premium. Sometimes it’s very difficult to know the geographical area where the vehicle will operate unless the proposer declares hence underwriter may end up not charging an appropriate premium for the risks being covered.
Underwriters not getting all the particulars of the motor vehicle: There’s a great development in the distribution channels for personal line products and motor insurance across the market. Most insurers are now focusing on technology, direct clients, brokers, and binder agreements to distribute motor insurance and as result, most underwriters only focus on the vehicle registration and chassis numbers which can be forwarded through email and technology advancements.
Although there’s a great development in the distribution channel and pressure to close business and grow the book, Sanlam general made it a policy for all motor vehicles underwritten directly to be inspected by one of their underwriters, where the underwriter can’t reach the client is required to send a picture of the vehicle capturing details like physical appearance, registration number, and chassis number so that the underwriter can compare it to the logbook and see if the information provided tally with what is on the vehicle and when the business is written through binder agreements with brokers the same procedure is followed this has made them different from other competitors and it’s reduced the level of fraudulent claims in the company and simplified claim process at the time of claim.
Make recommendations, based on your analysis, to optimize the underwriting policy in response to this market competition.
Whereas the insurance market in Uganda has become very competitive with insurers doing their level best to meet the annual target set, Sanlam hasn’t bowed to this pressure and they still follow their underwriting policy/guideline.
Policy terms and conditions should always be adjusted based on the age and experience of the driver. Basing on the data gathered by Sanlam, age and driving experience contribute a lot to claims experience. Young drivers tend to be reckless compared to mature drivers with a lot of responsibilities. Sanlam should keep on adjusting policy terms and excess to accommodate young and inexperienced drivers to fit in the pool of other experienced and mature drivers.
Efforts should be made to get details of previous insurance: Competition has made it difficult for insurers to share data with each other however Sanlam should put efforts in getting this data most especially for new clients and for existing clients review should be done while sending renewal notice with all the adjustments depending on client’s performance during the previous insurance period. This will guide the underwriter in determining the renewal terms or terms to give to the new prospects.
Lack of standard database to obtain Name and details about the proposer
Underwriters should always get all the particulars of the motor vehicle: As it’s been the norm Sanlam general should stick to their underwriting policy by inspecting all the motor vehicles to ascertain all the details or particulars of the vehicle. The inspection helps underwriters to compare what’s written on the logbook and what is on the car so
Referencing must be completed before submission
All sources must be referenced in the body of your answer as well as in your reference list. See the 960 Specimen coursework assignment and answer for examples of how to reference correctly in the text and in your reference list.