Sunday, June 7, 2009

No-Fault Motor Insurance for Singapore?

Recently, there have been articles in the newspaper talking about no-fault motor insurance to reduce fraudulent claims. So what is no-fault motor insurance?

No-fault motor insurance in the context of automobile insurance laws in the United States, Canada, and Australia, is a type of insurance in which a policyholder (and his/her passengers) are not only reimbursed by the policyholder’s own insurance company without proof of fault, but also restricted in the right to seek recovery through the civil-justice system for losses caused by other parties. According to Wikipedia:

The victim's insurance company would only pay out the claim, while the driver-at-fault's insurance company would pay out a claim and charge that party a higher insurance premium as they are now higher risk. While this may disadvantage the victim's insurance company, as the at-fault driver's insurance company can recoup the claims quicker through raised premiums, accidents happen between drivers of both insurance companies with an equal chance of drivers from both sides being at fault, so this in theory should even out.

Would this system help in Singapore context? The main problem of the motor industry now is that you can have thousands of dollars of claims from a dented bumper and thousands of dollars of "whiplash" claims, and somehow this kind of claims gets approved quite easily. To me, it seems like the due diligence for checking through the claim process is not thorough enough. Changing to the no-fault motor insurance will not make a difference.

Instead of mandating another type of insurance in Singapore, I would think a better move would be to analyse the claim processes and work on how to improve on it further. For example, how will the insurance company verify that the dented bumper really costs $x, and how will they verify whiplash claims.

I think the Singapore government though can help in that. The government could pass a law where a false declaration of motor accidents will result in a penalty (with a cap), made payable to the insurance company. Repeated offenders may be jailed for example.

With the deterrence in place, drivers would think twice before submitting inflated claims to the insurance companies. Using the concept of Singapore's 2 Ks, this would work in lowering the claims.

I still can't believe that insurance companies will accept claims of whiplash when the car only maybe has a dent on its bumper. Weird claim process.

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