Accident rates continue to be a concern for insurance companies in Ecuador, which report a rise in the costs they paid in 2023 for accidents in the vehicle sector.

Figures attributed to the Securities and Exchange Commission show that during the first half of this year, from January to June, insurance companies paid more than $152 million in claims costs at the branch. This represents an 18% increase compared to the same period in 2022, according to María Augusta Lucio, head of business development at Seguros Alianza.

The executive authority assures that this increase in costs is closely related to the situation of insecurity that exists in the country. He showed figures showing that between January and July 2023, 5,900 car thefts were reported in Ecuador, an increase of 63% over the past two years. While the National Transport Agency (ANT) counted 9,986 accidents or incidents in those seven months and stated that the three main causes were careless driving, disobeying traffic signs and speeding.

Vehicle theft leaves insurers with technical loss of $10 million by July, so they are now excluding models and brands from coverage

Last August, Patricio Salas, executive secretary of the Ecuadorian Federation of Insurance Companies (Fedeseg) and general director of the Association of Ecuadorian Insurance Companies (Acose), indicated that historically the rate of traffic accidents was about 54%, but in 2022 it rose to 68% and by July 2023 . was at 75%, which seriously affected the results of companies offering this service. And because of these theft loss indicators, the market suffered a technical loss of $10 million by July.

Vehicle insurance is the second most sought-after branch of insurance in the country with 18.7% of the market, behind group life insurance which has 28.8%. Firefighters are third with a 12.6% share.

Lucio admitted that the biggest figures in the cost of damages are car theft fees. “For insurers, this translates into returning to the customer the value they insured their vehicle for, figures that can range from $8,000 to $200,000 for more exclusive car models.”

He explained that just as traffic accidents are included in the classification of traffic accidents, other events are also taken into account, such as theft, damage due to vandalism or damage due to natural phenomena.

Claims have an effect on future insurance contracts

As for the impact accident rates may have on the negotiation of an upcoming insurance contract, Lucio cautioned that insurance companies categorize drivers by their accident rates.

Although this categorization depends on each company, at Seguros Alianza they distinguish the accident rate of their clients under the traffic light concept: green are those with an accident percentage less than or equal to 70%, yellow are those that exceed 70% and can reach 100%, and red are those that exceed 100% accident rates.

To determine the category of each user, the insurer divides the total value of claims payments by the value of the premium and multiplies by 100. “With this formula, we get the percentage of claims for each client,” commented the executive director.

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This means that if a customer had two accidents during the year that resulted in a payment of $500 to the company, and their premium or insurance value was $300, the formula applied would result in a 167% accident rate. That is, the company paid more than it earned. “But if, analyzing the client’s history, he was insured for three years with the same premium value and this is his first loss, the percentage of loss will drop to 56%, because in that case the company earned more than what it paid” .

Therefore, in the process of contracting or renewing insurance, the company will take into account the accident percentage and analyze each case separately, taking 70% of the accident rate as the appropriate limit.