Insurance! What comes to your mind when you hear this word? Or rather I should ask how it makes you feel. Does it make you feel safe or do you feel jitters.
If you live in Pakistan and you decide to buy a car on lease, and when the sales rep tells you that you have to buy insurance policy for your car, the typical reaction would be; ‘Oh God! Why me?’
This poses a serious question, why do we have such a negative connotation towards insurance and particularly car insurance.
Now the stats are staggering. Various reports suggest that annually 21 thousand cars are stolen annually which amass a total loss of almost PKR 5 billion. And the money lost in the repairs in case of accidents can’t be estimated.
Very rarely you will find a person who will willingly buy car insurance. Most of the people who have insurance were forced to buy it because they bought it through auto finance.
Let’s consider the various the reason for why Pakistanis are reluctant to buy even basic car insurance.
Lack of Law Enforcement:
In the developed world insurance is engraved in their culture. There is no concept of business without insurance in the western world. If you are not insured you will get penalized for it.
In Pakistan, the laws are not clear about it. Although according to the Motor Vehicle Act 1965, it is compulsory for the car owner to have car insurance. But nobody bothers to buy it because the police never ask about it. If I knew that I will be asked about insurance I might seriously think about having one.
Bad Reputation of the Insurance Companies:
There is a general word around that Insurance companies are not there when you need them. People think that if there car is stolen or they meet an unfortunate accident the insurance company will take months to reimburse their claim. Or worse reject it outright.
There may be some truth to it but most of it exaggerated. There is a fierce competition among the insurance companies and none of them can afford a bad reputation in the market. Especially in the world of social media where one tweet can make or break a company they will definitely treat their customer fairly.
Sometimes people also play some tricks to con money out from the insurance company by using tricks which put the companies in a difficult situation.
Popularity of Used Car:
Pakistani market is obsessed with used car. If you do a quick market survey or an online search you will find a plethora of used car being bought and sold.
Now if you buy a used car and the previous owner had the insurance, that insurance will be null and void. You would have to buy new car insurance.
Now the car insurance company will calculate the depreciation on it based on how old the car is and will tell you the percentage of the cost of the parts that they will cover in case of accidents.
Now if the car is six years old, the depreciation will be 60% which means the owner has to bear 60% of the cost of the parts he buys, or being replaced. To most people this is not a lucrative deal and won’t consider buying an insurance policy. Depreciation is capped by most insurance companies at 60%, ie. 10% per year up till a 6 year or older vehicle.
The Religious Factor:
This is a sensitive issue that needs consideration. Like the traditional banking, the conventional ways of insurance are considered a form interest. And how pervasive religion is in our society, this is major factor of the unpopularity of Car insurance.
Although, Takaful is emerging as an alternative option but it has a lot to catching up to do.
Lack of Safety Culture:
Have you ever noticed a plumber hanging on to the wall without any safety while fixing a pipe? Or the reckless driving we all suffer from and, quite frankly, are guilty of. This shows that we are a nation that does not value safety.
And car insurance is basically a safety tool, a sort of a risk management to ensure the safety of your car and yourself. But if you have grown up in a culture that undermines safety, spending money on it will seem like a waste of money.
Registration of FIR:
This again is related to law enforcement. If your car gets stolen, the insurance requires you to lodge an FIR of the offence. Again, this simple procedure of the law can become a complete hassle for a common citizen. Not every officer of the law is corrupt but the perception of the police that a common man has is overwhelming.
This may not be a fundamental reason for not buying the car insurance but certainly contributes in the decision of not buying one. Don’t be a statistic, and get motor insurance for your vehicle whether it is new or old!