IN AN attempt to stamp out inflated claims and runaway premiums, insurers and Singapore's consumer watchdog body are proposing to restructure motor insurance here.
The most radical change they propose is a move to a no-fault regime - one that does away with third-party claims as well as lengthy and costly litigation that the current system tends to encourage.
The Consumers Association of Singapore and the General Insurance Association (GIA) will jointly table a set of proposals to these effects to the Government later this month.
In a no-fault system, a motorist who gets into an accident will claim against his own policy, regardless of whether he is at fault.
He will give up his right to sue the other party, unless negligence is evident - for instance, in the case of drink-driving.
Claims for the all-encompassing but medically hard to prove "pain and suffering" may also be greatly restricted.
Genuine injuries, however, should still be claimable.
In addition, the no-claims discount (NCD), which rewards good drivers with lower premiums, may be far less generous than today, or dropped entirely, because insurers will have to rework their risks to even out their exposure in a no-fault regime.
What are the advantages of a no-fault system?
Claims will be settled speedily, and repair costs will be capped since it will no longer be "the other party" who will pay for them.
And there will be not much need for legal intervention.
But is a no-fault motor insurance regime really better than the current liability system and will it result in lower premiums?
Going by the experience in other countries, it is not clear.
Data collated by the National Association of Insurance Commissioners in the United States, published in 2005, revealed that premiums were 19 per cent higher in states with no-fault regimes than in those without.
And in states where no-fault laws were repealed, motorists experienced sizeable average premium savings.
Another example worth examining is that of New Zealand, which embraces the no-fault system for injury claims.
Vehicle repair claims, however, are settled using the liability regime.
Ms Bronwyn Howell, acting director of New Zealand's Institute for the Study of Competition and Regulation, told The Straits Times that it was difficult to ascertain how the no-fault regime had affected premiums.
She said this was because the country had adopted the practice for over 30 years now, and there has been no competition from alternative compensation schemes to compare with.
In a study she published in 2002, Ms Howell noted that "if...individuals are not required to pay for the losses that they cause, then they will take fewer precautions than is optimal and more adverse events will occur".
Indeed, it was partly this concern that derailed Malaysia's plans to switch to no-fault.
The Malaysian Attorney-General mooted the idea in 2007.
But the proposal faltered when it met with strong opposition, chiefly from lawyers.
Their arguments included:
- accident victims will not be represented by lawyers and will be at the mercy of insurers;
- high chance of insurance fraud - for example, a person may make a claim for self-inflicted damages;
- other countries are looking to drop no-fault and revert to the liability regime.
One thing that sank the proposal, according to one top lawyer, was the "inevitability" of higher premiums in a no-fault environment.
"In a no-fault system, the good drivers subsidise the bad drivers," said one critic.
A no-fault plan does not always prevent fraud either.
In New York, a billion-dollar-a-year "no fault fraud industry" thrived between 1995 and 2007.
Criminal rings recruited conspirators - often immigrants - to stage accidents and file exorbitant claims.
It is unlikely the no-fault system will be the silver bullet to kill Singapore's inflated claims monster.
To slay the beast, we must cut off its legs.
One of the legs is the high cost of cars here.
The cost however is made up largely of taxes.
So do we need to insure the tax value of a car?
When asked several years ago whether they would insure cars without the certificate of entitlement (COE) element, insurers here said "yes", but they offered a small discount, something like 5 per cent.
Next, contrary to popular belief, motorists here are required only to have insurance covering third-party bodily injury.
The law does not require them to insure the vehicle itself.
But as far as can be established, no insurer offers such a policy.
Such a policy should theoretically be cheaper than what motorists are paying now, since the vast majority of road accidents do not result in injury, even if fake injuries seem to be on the rise.
What will happen if vehicles are not insured?
Drivers are likely to exercise more caution, because they know they will have to pay for each and every dent themselves.
And workshops are likely to charge less since they know you will be paying for the repairs yourself.
What if there is major damage?
One option would be to scrap the car and recover the residual taxes.
The Government can make this less painful by allowing the unused portion of an irreparable car's taxes to be transferred to a new vehicle.
This practice, if allowed, will also make for safer motoring, as there will no longer be a need for dubious repair practices - such as replacing a whole damaged rear portion by welding on a section sourced from the scrapyard.
Many insurance-covered repairs currently cost more than the open-market value of a car - the cost of the car before taxes.
This means it costs more to repair a car than to make a brand-new one.
If Case wants radical change, it should look beyond no-fault policies.
