CLASS UPDATE – MOTOR IN IRAQ
Motor insurance in Iraq: Resilient and profitable Motor insurance in Iraq is expanding and profitable. However, the number of insurers which are willing and able to write motor risks in the country is limited, says Mr William Wakeham of AAIB Insurance and Reinsurance Brokers, in an overview of the sector.
t is difficult to obtain statistics on the Iraqi insurance sector and figures for the gross and net written premiums, claims ratios, operating ratios and market shares and so on are not published. However, using intelligence from our network of contacts within the insurance industry and by speaking to other professionals in Iraq, it is clear that the motor insurance sector is profitable and expanding and has been so for a number of years. As expected, the state insurer, the National Insurance Co remains the dominant player. The number of insurers which are willing and able to write motor risks in Iraq is currently limited due to factors like reinsurance treaty restrictions, a low risk tolerance, and a lack of information on the local environment. As such, challenges exist in estimating the probable claims incidence that may result. Therefore, local knowledge and a local presence can be important considerations in the quest to obtain suitable coverage and competitive terms.
Standard procedures Feedback suggests that the rate of process and product innovation among insurers remains limited and claims management procedures and supporting technologies remain traditional – although more insurers are being established, not much company restructuring or innovation is underway at present. Policy wordings also remain standard and traditional, as do the underwriting, risk assessment and rating methodologies used. In fact, we are unaware of major implementations or upgrades to quotation, policy administration systems or underwriting systems. Limits vary by section. For example, below are the limits for a comprehensive motor policy from a major local insurer: • Fire: IQD30 million (approximately US$26,000); • Theft: IQD20 million; • Third party liability: IQD10 million.
Iraq insurance law Insurance supervision The Iraqi Insurance Diwan oversees the insurance sector in accordance with the Insurance Business Regulation Act No. 10 of June 2005. The Law meets international
standards. The Act applies to all insurers and reinsurers conducting, wholly or partially, insurance or reinsurance business in Iraq, regardless of the entities’ status (private, public, foreign or local). The Act does not specifically state that insurance must be purchased from locally licensed insurers; however, some contracts do stipulate that a local insurer must be used. Various legal practitioners would also recommend that local insurers are used for practical and risk mitigation purposes. The Act also requires that insurance brokers or reinsurance brokers need to be licensed by the Diwan. It has been reported in some media that some insurance intermediaries operating in Iraq are not licensed or not registered locally. Therefore, it is incumbent upon clients to check the credentials of the broker acting and ask for the registration number, as using a non-registered broker can raise risks and questions as regards legality, coverage, claims settlement, or reputational damage.
Local compulsory third party motor insurance The law governing the application of third party motor insurance in Iraq is found within Act number 52, dated 1980,
CLASS UPDATE â€“ MOTOR IN IRAQ
in particular 3/11/1980. The law requires third-party coverage for bodily injury and death, to an unlimited amount. The indemnity limit equates to approximately $14,000. The National Insurance Co is permitted to operate the compulsory insurance scheme.
Local compulsory third party motor insurance claims management Funds to pay out claims monies are collected as part of the price of petroleum, at the time the fuel is purchased by motorists. Funds are paid to the Ministry of Finance quarterly by the Ministry of Oil. Monies are managed and accounted for and paid out by a financial department within the National Insurance Co. The procedure followed is that when a claim occurs, the claimant or his/ her representative submits a claim to the National Insurance Co where a special Committee sits to review such claims. The committee includes employees from the Social Services Committee, employees from the Legal Department in National Insurance Company and a qualified judge from the Ministry of Justice. So whether claims are met and what the level of compensation paid out will be at the discretion of a qualified judge.
Coverage and underwriting Coverage is available in the commercial market that applies in excess of local compulsory insurance. In practical terms, it only applies when compulsory automobile liability insurance applies. Cover is also available for accidental damage to the vehicle from various causes, and from political violence/ terrorism.
Cover Excess liability coverage for third-party damage from the use of owned, hired, or leased vehicles is given and the limit can be up to $1 million or higher. Defence costs are also covered and a policy extension may exist for medical payments up to $10,000 per person, per accident. An underwriter can also provide a range of covers, for example, loss or damage to a vehicle from accident, collision, fire, theft or malicious damage. Requests to restrict coverage on certain elements, for example, theft only, may raise some questions and may not be acceptable to an underwriter. The policy can be extended to cover political violence/ terrorism; an area that is attracting growing interest in the region of late. This coverage will include incidents arising from strikes, riots, rebellion, insurer action, civil unrest, saboteurs, civil commotion, terrorism, revolution, war including civil war, and malicious damage. The types, ages and values of the vehicles presented will clearly reflect the business, activity, or usage of the clients. Cover will be restricted to theft only on older vehicles, and cover may not be provided at all for some specialised, high value vehicles that are more suitably insured under a Contractors Plant policy.
Underwriting The underwriting terms will reflect the particulars of the risk including the location the vehicles, whether the vehicles are stored within a compound and guarded, the claims experience, the minimum age of driver allowed, if the vehicles are used within cities or in remote areas and so on.
Drivers Terms will be imposed for example allowing any licensed driver aged 25 or above. The insurer will rely on the risk management practices of the clients to a large extent. The insurer frequently relies on the clientsâ€™ own systems to ensure that drivers are licensed and able, and to manage the necessary validation and record keeping.
Fleet-rated business A policy may cover a fleet of vehicles or even an individual vehicle such as an armoured land cruiser. A wide range of vehicles can be insured. On a fleet basis, automobiles, trucks, minibuses, ambulances, fire engines, motorcycles, tankers and even some items of plant can be listed. Motor fleets can be handled on a declaration basis with periodic adjustments in premium; declarations may be quarterly or annually, for example.
Policy conditions The conditions found in a typical motor insurance policy also apply. The vehicle must be owned or leased by the insured. The insurer has discretion to repair or replace the vehicle or provide the cash value. Typical policy exclusions exist. The main ones are mechanical breakdown, wear and tear, and nuclear, chemical, and biological causes.
Room for improvement In summary, the Iraqi motor insurance sector has shown itself to be resilient and profitable â€“ which is a credit to local insurers. The sector is expanding and facing rising customer demand, fuelled by the major investments that are being made in the energy sector and other parts of the economy. There is room for more product innovation, improved industr y procedures and more effective marketing communications, and I am confident that further improvements will be made in all of these areas over the next 12 months. Mr William Wakeham is the CEO of AAIB Insurance and Reinsurance Brokers.
Excesses For vehicle damage/ loss claims, compulsory excesses will always apply. These will vary depending on the type of vehicle, for example, for a soft-skinned vehicles, it can range
from $500 to $2,500 for each and every loss per vehicle. For armoured vehicles, the limits will typically be higher and range from $7,000 to $10,000 for example. Underwriters may offer premium deductions for voluntary excesses for example the clients may elect to take a deductible of 10% of the vehicle value, or perhaps $10,000. This is encouraged as besides making the insurance cover more affordable, voluntary excesses encourage a higher standard of risk management on behalf of the client, avoid small value claims and so lessen the administrative burden.
Disclaimer: This article is not intended to be taken as fact or advice and is based on a range of sources. AAIB makes no representation or warranty as to its accuracy and shall have no liability to any party for decisions that may be made based on this article.