Five Things About Motor Insurance In Pakistan
Insurance as a whole is a hard sell in Pakistan. General insurance premiums represent approximately 0.3% of Pakistan’s GDP as compared to 4.5% in the US, and 2.2% in Japan. Perhaps it is the lack of awareness amongst our young population or maybe it is just the cost-driven nature of our economy The National Road Safety Secretariat of Pakistan estimates the economic costs of road accidents and injuries at over Rs 100bn annually. Of course, these losses are more than just numbers; it includes serious injuries and the loss of lives. Compared to these costs, the price of auto insurance is a small one to pay. No, getting Auto Insurance does not guarantee accident-free roads, but it does enable more people to be compensated for losses caused by accidents. It also promotes road safety, and most importantly, it is part of our law.
- Under the 1965 Motor Vehicles Ordinance, it is mandatory for all vehicle owners to obtain third party insurance. Third party insurance is the minimum level of insurance that can be obtained on a vehicle. If you cause damage to someone else’s property or injure them while driving, that person receives appropriate compensation. To protect against damage to yourself and your car, comprehensive insurance is required. As our population, infrastructure, and traffic grow, we encourage everyone to protect themselves and others against the increasing risks of driving. It can cost between Rs 45,000 – 60,000 to ensure a new Toyota Corolla, and a simple paint job and replacement of a bumper can sometimes cost more than that.
- According to a recent PakWheels survey of around 11,000 respondents, only 25% had their cars insured. The law only seems to be enforced when financing a vehicle through a bank. Otherwise, auto insurance is often perceived as an unnecessary expense. Considering there are over 25,000 fatalities and countless other losses due to road accidents in Pakistan every year, more should be done to promote road safety and the use of auto insurance. Using our web platform, you can scan and compare all the options in the market within a matter of seconds and get the best deal out there!
- All insurance providers in Pakistan provide the option of installing a tracker at an additional cost (mandatory for some car models, depending on the insurance company). This tracker is capable of tracking a car’s location and speed across the country and can also be used to shut down the car remotely in the event of theft. Companies charge an installation fee for the tracker and then either add a flat yearly fee or factor in the fee as part of the premium. It is important to note that in some cases (e.g. TPL Insurance) the tracker remains the insurance company’s property and cannot be resold by the car. When using our search engine, you have the option of including a tracker and compare all the prices in one place.
- Depreciation is charged for insurance purposes, typically at 10% annually in Paki-stan from the date of manufacture of the vehicle. This applies to cases where any parts of the vehicle are damaged in an accident and need to be repaired. For example, if a part of the vehicle is damaged after 5 years of having insurance, the insurance company will only pay 50% of the cost of the repair. The rest will be borne by the car owner. However, this depreciation element can be waived for an additional charge, which is recommended for new cars.
- In Pakistan, insurance premiums are based only on the market value, model, make and age of the vehicle and typically range from 3% – 5% (annually) of the value of the vehicle. Auto insurance is much more affordable in Pakistan as opposed to developed economies like the US and UK where other factors such as the type of car (i.e. sports car vs sedan), driver’s age, experience, accident history and credit score are given more weight. For example, an 18-year-old with a brand new car in the UK would have to pay a much higher premium because of his/her age and lack of experience. In Pakistan, it simply depends on the age and value of the car and nature of the driver does not impact the premium. However, no claims bonuses are available for insured drivers who have a clean record, providing a monetary incentive to drive safely.
If we consider the security circumstances in Pakistan and the exponential rate at which traffic is growing, insurance should be regarded as a necessity. The benefits of comprehensive auto insurance far outweigh the economic costs. It provides a sense of safety and security and protects you from loss not just from road accidents, but also fires, floods, terrorism, riots, and theft. Car Insurance plays an important role in the overall push to make our roads safer. Cars in Pakistan are one of the most expensive commodities – is it not worth spending 5% more to protect it?