One of the approaches favoured by the Malta Financial Services Authority in a bid to improve the current situation with regard to motorcycle insurance is to oblige all companies involved in motor insurance to also cover motorcycle risk.

"If approved, this system should lead to a fairer spreading of the risk," the MFSA said in a press release it described as a "guide to issues relating to (the) recent increase in motorcycle insurance premiums".

The "guide" consisted of a number of questions and answers:

1. What has led to the increase in motor cycle insurance premiums?

There are three main reasons for the recent increase in the premium for a motor cycle third party insurance policy:

1. the law will, as from May 1, 2004 require that a motorcycle insurance policy also cover the pillion rider (up to April 30, 2004 the motorcyclist could opt not to purchase this cover);

2. the insurance policy will also from May 1, 2004 cover third party liability risk in all states of the European Economic Area (prior to this date, the motorcyclist had to buy a Green Card at an additional cost to take the bike overseas);

3. there has been a marked increase in the court awards for damages to third parties, including pillion riders.

2. Can a motorcycle insurance policy exclude the pillion rider?

Not any more. Currently, whenever a third party or a pillion rider suffers damages or injury as a result of a traffic accident and the involved vehicle is uninsured, the damages are settled out of a compensation fund which is funded by all insurance companies. This may ultimately result in premium increases to other policyholders and the situation therefore has to be addressed.

3. Why should a driver be forced to insure for driving overseas whenever he travels by car or motorcycle?

Freedom of movement within the European Union implies the freedom to travel by car or motorcycle throughout all member states of the Union and EEA. As from May 1, the non-territorial cover of a motor insurance policy will obviate the need for a Green Card. The great majority of drivers would be ready to declare that their motor vehicle will not be taken outside of Malta in order to obtain a discount from their insurance premium. However, there is no means of impeding that vehicle from leaving Malta and the insurer remains liable for any damages caused to third parties, including pillion riders by that vehicle on the European continent.

The risks being assumed by insurers in this scenario are very new. For instance, there are few indications as to the potential damages which a driver insured in Malta may cause to third parties involved in an accident overseas. A study has been commissioned to evaluate these types of risks and, consequently, permit more informed pricing of insurance policies.

4. Is it true that in some cases there has been an increase in motorcycle insurance premiums of 400 per cent?

Yes, the MFSA is aware of one insurer who increased the premium by almost 400 per cent. This company has been asked to explain its pricing policy. From investigations it has resulted that other insurance companies have increased or will from the date the new legal requirements come into force increase the premiums charged for motorcycle insurance. This increase in premium is however well below the 400 per cent being quoted.

5. Is the MFSA responsible for looking into the pricing of insurance policies?

The primary function of the MFSA is to regulate, monitor and supervise financial services in Malta, including the activities of insurance companies and insurance intermediaries. The authority has the duty to investigate allegations of practices and activities detrimental to consumers of financial services and generally to keep under review trading practices relating to the provision of financial services. It can also take measures to suppress and prevent any practices which may be unfair, harmful or otherwise detrimental to consumers of financial services.

6 What is the MFSA's position on the current increase in prices?

The MFSA is at the current moment actively involved in consultations with all parties concerned and is at the same time also investigating a number of complaints filed by individual consumers in this respect.

As already explained above, the extent of risk being covered by insurers needs careful evaluation in order for the relativity between the risk being insured and the premium to be charged to be clearly established.

Whatever action the MFSA may take before or after such evaluation is carried out, it is in duty bound by law to ensure that:

a) such action does not impact negatively on availability, competition and choice on the market. (An insurer is not obliged to continue providing insurance where he sees that this is not economically viable.) and

b) that any company offering a particular insurance in Malta would be in a position to honour any commitment that may arise as a consequence of a claim covered by such insurance.

7. What factors does the MFSA have to take into consideration?

Insurers are now being obliged by the recent amendments to the motor insurance legislation, including amendments affecting motor cycle insurance, to undertake new risks. The risk exposure resulting from these new risks is to a large extent still unknown to insurers. This fact, coupled with a recent court judgement involving a pillion rider, has led some insurance companies to stop offering insurance cover for motorcycles or to drastically increase the policy premium or take on new motorcycle risks on their books.

In evaluating the situation the authority's main responsibility is that of ensuring solvent and healthy insurers that are able to cover the consumer's insurance needs (be it health, home, life, motor and other insurable risks) and that insurance companies are also able to meet their future obligations under the policy.

8. What factors do insurers take into consideration when reviewing premiums?

The income of insurers is mainly derived from the premium that they collect from policyholders. If the income they derive from their operations is not sufficient to cover their operational expenses and to be able to meet their financial obligations under the law they will have to reassess the insurance rates they charge.

It is also pertinent to point out some statistical information that could be relevant from this perspective. Figures published by the National Statistics Office for 2002 show that the amount of premiums paid to insurance companies in respect of motor vehicle insurance policies during the year amounted to Lm 21,167,000 and the total amount of motor claims settled during the same year was Lm 15,078,000.

Moreover, insurance companies in Malta operate on the principle of competition and choice. Insurers assess each risk on its own merits taking into account various factors. For example, in the case of motor vehicle insurance, insurers take into account various factors, such as the type and market value of the vehicle, the claims experience and age of the driver, the cover required, the use of the vehicle etc. This implies that an insurance company is free to choose the risks it wishes to insure and the terms and conditions of the insurance cover. On the other hand a policyholder is at complete liberty to arrange his insurance requirements with any insurance company of his choice. This is the way developed insurance markets operate.

Although the local market has its own peculiarities, it is also possible that once Malta becomes part of the wider EU market, insurance policy prices within the EU could also affect pricing on the Maltese market. This means that, all things being equal, if prices in the EU are lower (as is being argued by some consumers) this should have a positive impact on local prices. This is how competition works in favour of the consumer, although one cannot exclude that geographical and social factors, as well as demand, could have an impact on the price of any product or service sold in different parts or regions within the EU.

9. What action can the MFSA take if it results that there has been any irregularity in the way that insurance companies conduct their insurance activities?

In case of irregularities, the MFSA can take regulatory measures such as issuing warnings to the insurer or insurers concerned or instructing them to regularise their position. In cases which amount to a breach of licence conditions, MFSA can also take other measures such as applying fines or taking other steps according to law. If from the investigations carried out by the MFSA concerning the premiums increases it appears that there is a violation of any law regulating fair competition, the MFSA may also consider the possibility of filing a report with the Competition Office so that the matter can also be investigated from this perspective. Consumers also independently have the right to file such complaints should they feel there are any issues that are in breach of the Competition Act.

10. What action can the MFSA take in order to improve the situation?

Pending a full evaluation of the potential increase in the number and extent of claims as a consequence of the reasons identified above, the MFSA is working on a number of possible measures. In the process, the authority has requested statistics relating to motorcycle accidents and claims and has also met a number of involved parties including other authorities, insurers and a group representing a substantial motorcyclists on this matter. It has also noticed that some insurers have made co-insurance arrangements in order to be able to provide better rates.

A number of specific measures, which would address availability of insurance cover for all types of motorcycle owners, terms and conditions of cover, including premium rates are being considered.

The implementation of some of these measures may require exemptions from legislation regulated by other authorities and which, if granted, may also be dependent on conditions imposed by these authorities for their implementation.

For example, one of the approaches favoured by the authority in the current circumstances is that all companies involved in motor insurance will be obliged to insure also motorcycle risk. This approach requires the approval of the Office for Fair Trading Consumer Competition Division. If approved, this system should lead to a fairer spreading of the risk.

Naturally, these authorities would only be able to authorise certain measures if this is possible under the laws, regulations and policies that apply in their area of responsibility. The implications of possible solutions that have been put forward are therefore being examined in this context.

11. What can consumers do to safeguard their rights?

The MFSA has published a large amount of information for consumers who wish to know more about buying insurance and consumer rights.

The MFSA will investigate any complaint it receives from private consumers arising out of or in connection with any financial services transaction, including insurance activities. Therefore, any aggrieved motorcycle owner may lodge a complaint with the customer complaints manager at the MFSA.

For more information about this procedure, or consumer rights generally one can contact consumer helpline at consumerinfo@mfsa.com.mt or write to the Customer Complaints Manager, Malta Financial Services Authority, Notabile Road, Attard BKR 14.

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