Leading taxi insurance provider scrapped all policies - Analysis and insurance options (Updated 7/1)

的士保險龍頭退保 一文分析原因及保險選擇

Leading taxi insurance provider scrapped all policies  - Analysis and insurance options (Updated 7/1)

The leading taxi insurance provider in Hong Kong announced without preceding warning that it would scrap all policies after seven days. In other words, approximately 75% of the current taxi insurance policies will be terminated. If drivers affected by this change fail to find a suitable insurance company to take over their policies within this time, they may be prohibited from driving. Many drivers are puzzled and worried about losing their livelihood with their insurance being suddenly scrapped. Relevant sources estimated that more than 550,000 passengers and 25,000 taxi drivers may be affected every day. These drivers will lose a total of $44 million in business each day.

In today's Kwiksure feature, our experts will analyze the ins and outs of this incident, study the dilemma faced by the taxi insurance business and feasible solutions.

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(Updated 7/1)

This morning, the Insurance Authority (IA) announced that it will take over the business and assets of Target Insurance, and will hold a press conference in the afternoon to elaborate.

- Through regulatory work and market intelligence, the IA found that Target Insurance’s investment activities and fund allocation may have violated the requirements of the Insurance Ordinance. With the company's internal governance also lacking, the Authority exercised its rights on the grounds of public interest to appoint Deloitte’s Touche Tohmatsu as the manager to maintain the normal operations of Target Insurance.

- Deloitte will review and assess the current asset status of Target Insurance to obtain a full picture of the company's future direction.

- The solvency of Target Insurance has been poor. The IA has previously imposed additional regulatory requirements on the company, including additional statutory deposits and restrictions on the use and deployment of its assets.

- The situation is a special case as four insurers need to process 8,000 policies in a short period of time. If the insurers fail to complete the policy issuance process before the policy cancellation deadline, they can make a 30-day mortgage arrangement, or postpone the submission of some documents, so that they can provide insurance coverage without fully issuing new policies. This is to avoid hindrance to the taxi industry.

- Since Tuesday, the IA has taken the lead in coordinating, so that taxi owners do not need to inquire about the premium by themselves, so as to facilitate the transfer to insurers that still have capacity.

- As of this morning, policies for approximately 7,894 taxis have been diverted to the four insurance companies.

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Four insurance companies may be able to provide transitional insurance solutions

According to sources, the leading taxi insurer accounts for more than 60% of the policies for about 18,000 taxis in Hong Kong. However, it has recently issued notices to 75% of taxi drivers that it will terminate their insurance policies after a seven-day notice period. As the current laws in Hong Kong require vehicles to be covered by valid motor insurance when driving on the road, it is estimated that more than 10,000 taxis in Hong Kong may not be able to fulfil this requirement and will be prohibited to drive.

The IA and the Federation of Insurers have notified the industry that they have coordinated the transfer and underwriting of related policies from four insurance companies (BOCG Insurance, China Pacific, China Taiping, and CMB Wing Lung Insurance), and offered a 30-day temporary policy transition plan. The pricing will be based on the no-claim discount and the current year's payment record. Drivers who are issued a temporary policy can still legally drive and operate during the period, but they have to find an insurer to write a new policy within the 30-day period. However, it is expected that some drivers will give up the transfer due to high insurance premiums.

Taxi groups are dissatisfied with this, and criticized the insurance provider that as the market leader they did not provide any alternatives, such as assistance in finding new insurers. In addition, the astonishing increase in taxi insurance premiums in recent years has been a great burden for taxi drivers.

In fact, this incident is not groundless. As early as last November, the leading insurer has suspended the renewal and issuance of new taxi insurance policies for existing taxis. According to the company’s 2020 annual report, the loss ratio in the taxi segment was 77.6%, the highest among all businesses, resulting in a loss of HK$11.78 million during the period. However, in the 2021 interim report, the segmental profit of the taxi insurance business recorded HK$34.204 million, and the gross premium income from this segment reached HK$160 million, accounting for approximately 43.2% of the overall gross premium income.

Hong Kong taxi insurance suffers from deteriorating losses

Year

2015

2016

2017

2018

Gross Premium (HKD in millions)

408

410

414

421

Gross Premiums Increase

(compared to the previous year)

2.77%

0.49%

0.98%

1.69%

Underwriting Profit

(loss, HKD in millions)

25

21

(42)

(70)

Underwriting Profit/Loss Percentage

6.127%

5.122%

-10.145%

-16.627%

Increase in Claim Amount

-0.78%

1.57%

17.22%

7.68%

Source: Legislative Council Documents

Legislative Council meeting reveals surprising increase in premiums

According to the 2020 Legislative Council Joint Subcommittee Meeting on Transport Insurance, at the time, “there were only a few insurance companies underwriting taxi insurance, the market lacked competition and the situation was not ideal...” There are still eight insurers in the market that underwrite taxi insurance, but in 11 of the 16 years from 2005 to 2020, there were underwriting losses. The Federation of Insurers explained that “taxi insurance business has long recorded underwriting losses, and the losses in this segment expanded more rapidly in 2019, prompting the insurance companies concerned to increase their premiums by a larger margin to make up for the losses suffered.”

According to IA documents, the average premium of taxi third-party insurance rose from HK$20,435 in 2016 to HK$26,189 in 2020, an increase of 28%.

Changes in taxi insurance premiums in Hong Kong from 2016 to 2020

Year

2016

2017

2018

2019

2020

Comprehensive Coverage

25,911

25,859

25,537

28,050

33,902

Compared to the Same Period

of Previous Year

-2.5%

-0.2%

-1.2%

+9.8%

+20.9%

Third Party Insurance

20,435

20,381

20,670

22,210

26,189

Compared to the Same Period

of Previous Year

-1.0%

-0.3%

1.4%

+7.5%

+17.9%

Source: Legislative Council Documents

Taxi insurance industry more losses than profits

In fact, the problem plaguing the industry did not happen overnight. Taxi fares have not increased in four years. In addition, there are rarely young drivers in the industry, causing a gap in experience. As a result, it is difficult for the industry to eliminate certain old drivers even if they have problems with their driving attitudes. The lack of an effective management system also leads to a high accident rate.

The Legislative Council set up a sub-committee to discuss the issue in 2021, and concluded that “driver safety” and “rampant champerty” have led to an increase in claims.

Driver safety issues

Regarding the driving safety of taxi drivers, the team made the following recommendations including implementing a taxi driver responsibility system, encouraging the industry to hire drivers with good driving records, encouraging the industry to apply technology to reduce traffic accidents, and adopting fleet management to strengthen vehicle and driver management, attracting new drivers to the taxi industry, etc.

Rampant champerty issues

Champerty means abuse of insurance, exaggerating, or even falsely reporting injuries, and then making a claim against the insurance company, or even conspiring with lawyers to inflate the claim amount. This situation has worsened as current taxi claims are not required to provide footage. Faced with rising claims, insurers can only increase the overall premiums of the industry in order to ensure profits.

Finally, the team also recommended that the authorities consider suspending motor insurance levies or improving cross-border insurance for the transport industry, so as to reduce the financial burden of the industry in purchasing insurance.

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