A leading daily carried the news on April 10th, that "false insurance claims are lodged with insurance companies based on false information by the claimants. Police have found that the vehicles reported taken away and later recovered have actually been sold out by the complainants to avoid paying instalments to the leasing companies or banks in order to get benefits through acquiring the insurance amount based on the FIRs."
The most amazing part of the above report is that despite making such confessions the Police is unable to charge complainants under the section 182 of the Pakistan Penal Code. Instead of prosecuting the criminals the Anti-Car Lifting Cell (ACLC) comments: "We promptly intimate the insurance and leasing companies concerned not to accept claims against FIRs, which are actually based on false information.
This is the best we can do to prevent such institutions from losses for the accidents which never actually happened. In a few cases we were successful to some extent." The same daily further states: "A reliable source discloses that they get a brand new car financed from a leasing company and then sell it out to people mainly in coastal cities of Balochistan where a proper check on documentation of vehicles is not in place."
The contention of ACLC is correct about settlement of theft claims on the strength of FIRs by insurers because FIR is only a first information report on which the police starts its investigation. Therefore, insurers should, rather must wait till the final investigation is completed by the Police. Normally this procedure is completed after a period of three months when a final report is issued by the superintendent of police to the complainants.
However, the stand taken by ACLC does not absolve the law-enforcement agencies of their duty or responsibility as far as the safety of the property and person of the citizen of the country it concerned. Is it not alarming and strange that despite ACLC, whose establishment is created to check the menace of stealing of vehicles from the city of Karachi?
Every day more than 25 to 30 vehicles are stolen from Karachi and taken out mostly to Balochistan within hours of theft in spite of the fact that the police and the levies thoroughly search every day the picnickers' vehicles while going out to beaches, but fail to catch thieves getting away with their loot. Is it not horrifying that under the nose of the Police and ACLC vehicles are transported to neighbouring provinces through the exit points of Karachi so speedily and conveniently.
The aforesaid fact is confirmed by the latest data collected by Citizens Police Liaison Committee (CPLC) for the month of February and March 2008. In March, 5,199 mobile phones, 1,490 motorcycles and 635 automobiles were taken away as compared to the loot of February, 2008. The tally in February was: 4,650 mobile phones, 1,094 motorcycles, and 533 automobiles.
The increase was 36 percent in bike robberies, 18 percent in car-jacking and 9 percent in cellular phones theft. These figures show that the city is experiencing a sharp rise in the incidence of snatching and stealing. Is it not horrendous and alarming? It is hoped that the new government of Sindh will be able to arrest this surging menace.
Let me describe here the causes, which have led to this horrible situation. The rule is very clear that on theft or hijacking of vehicles at gun point, the sufferer has to lodge a FIR with the concerned police station. A copy of this FIR has to be submitted to the insurance company for lodging a claim.
The insurer asks the complainant to obtain a final police report about the theft of the vehicle and this final police report normally takes about three months or so for its preparation because the police has to make a thorough search of that vehicle.
This practice is still in force. The Police completes its investigation in a period of three months. By describing the above procedure, I am not belittling the efficiency of the Police, what am I driving at is that to a very large extent insurers are also responsible in this fraud. Before coming to the main point, let me describe the cut-throat competition that is now rampant among the insurers since the promulgation of the Insurance Ordinance of 2000.
This new Insurance Law allows the insurers to quote any rate of premia that they feel comfortable. For acquiring insurance business of auto financing, they adopt all sorts of methods to get this business.
The tariff rate of premium for motor car insurance (comprehensive) is 61/2 percent of the insured value of the vehicle whereas insurers are charging a rate that is acceptable to banks or leasing companies so much so that the rate of premium is reduced to 3 percent that in some cases it is cut to 2.5 percent.
Motor premium rates are fixed by the Insurance Association of Pakistan (IAP), which is the only representative body of private sector insurance companies. This rate of premium is determined by the Accident Committee of IAP after weighing claims and premia of each year.
The statistics of claims and premium are provided by all insurers which are IAP members. Morally, being a member of IAP, an insurer has to follow the tariff rates. Similarly, the rates of fire, marine cargo and workmen's compensation insurance are calculated and fixed by IAP. Now readers can very well imagine the consequences of rate slashing.
By looking at the premium and claim figures of insurers given in the table for the last six years, it is quite evident that premia and claims are rising every year. Why premium is shooting up because each insurer tries to grab the insurance business of auto-financing that emanates from banks, leasing companies and modarabas.
During 2005, the motor premium has been doubled as compared to 2004 premia. Is it not exceptional? In 2006, the increase is about thirty percent, which is phenomenal. These trends reflect that auto-financing was at its zenith in these two years. Therefore, my contention that insurers as well as auto-financial institutions were prepared to acquire this business at any cost is correct.
This un-cautious approach of both institutions, ie banks and insurers, to acquire motor business, is clearly discernable in the claims figures of insurers. These claim ratios do not include the cost of administration and acquisition that comes to about 20 to 25 percent. If you add these expenses in the aforementioned claim ratios, then the average will cross 100 percent, ie insurers are paying more from their own resources to secure this loss-giving business.
It would not be proper if the entire blame is put on the law-enforcement agencies and insurers because in this racket of fake car insurance claims, some responsibility also devolves on the loan-giving institutions. About a decade ago when auto-financing was introduced in the market by commercial banks along with the leasing companies and Modarabas, the commercial banks, in order to increase their business of consumer banking, did not adopt the same strict procedure of risk assessment of prospective borrowers that they usually apply while advancing loans.
They normally check the track record of traders and industrialists along with their reputation in the market and other related credentials. These checks are applied by banks to eliminate the risk of default. Since this important element of risk assessment was lukewarm in auto-financing, it gave birth to several malpractices. On account of this lenient risk assessing, fraudsters had the free field to grab as much profit as they could.
The other factor which is very important in the motor claim processing is the final police report. Without the final police report it cannot be determined and established whether the motor vehicle has been stolen or not. This final police report is issued by the police department after a period of three months because the Police investigates the whereabouts of the stolen motor car.
Unfortunately, insurers on account of acute competition and to provide excellent service to clients do not wait for a period of three months or for the final Police report. Most of the insurance companies due to the fear of losing a big account of business and also due to the pressure of financial agencies, settle claims of theft without obtaining the important supporting claim document, ie final police report.
Thus, such a bad practice germinates all sorts of rackets. If all insurers follow the standard practice of claim settlement procedure, this rising scourge will vanish, if not entirely, at least to a great extent. Therefore, it is not only in the interest of insurance industry but also for auto-financial bodies that in the absence of a final police report, motor claim should not be settled.
ACLC's advice to insurers and lending agencies not to settle theft claims on the basis of FIRs is correct and practicable. It is hoped that the advice given by the scribe will be listened to for their benefit as well as for our society.
MOTOR PREMIUM AND CLAIMS (IN BILLION OF RUPEES)
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Year Premium Claims Ratio
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2001 2.78 2.20 80%
2002 2.98 2.40 76%
2003 3.38 2.90 84%
2004 4.20 3.40 79%
2005 8.67 6.58 75%
2006 11.18 8.39 75%
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