(MENAFN - Jordan Times) The insurance sector is expected to incur over JD30 million in losses this year as a result of a fixed price on the compulsory third party liability (TPL) service, according to the insurers' top representative.
Jordan Insurance Federation (JIF) President Othman Budair also expected companies to lose around JD40 million next year if the current insurance system on motors remains unchanged, indicating that insurance firms have not distributed profits to shareholders for five consecutive years.
The current prices of TPL insurance coverage to cars is currently JD93.
In a bid to stop what Budair termed as "draining" the revenues of insurance companies, the firms early this month stopped issuing TPL coverage policies to pressure policymakers to either liberalise prices of the compulsory insurance or increase the tariffs.
However, insurers resumed issuing policies yesterday after reaching a compromise with the regulatory commission, according to the JIF chairman.
"The commission's board of directors believe that it is not the right time to liberalise or raise the service prices. And we believe so," Budair told The Jordan Times over the phone, noting that the commission promised to help the sector through measures that would reduce the industry's losses.
In 2011, insurance firms lost around JD28 million, mainly due to the TPL service, he said, indicating that only five companies out of 28 in the local market were able to generate modest profits.
Noting that an insurance company stopped its operations due to mounting losses, he said that there are several firms on the verge of bankruptcy.
He also attributed the drop in trading at Amman Bourse and low share prices to the poor performance of insurance companies.
Budair insisted that liberalising prices of the service is the only way to boost the industry in Jordan, a country he said adopts the free market approach but still is among few nations worldwide that imposes fixed TPL charges.
Inflation rate in Jordan is going up and prices of spare parts in the international market have increased recently by 10 per cent pushing up the cost of insurance on motors, Budair said.
Asked whether the local market needs 28 insurance companies, he replied that some of these firms should merge to reduce their losses, pointing out that in Japan there are only nine companies that offer insurance services.
However, he blamed policymakers for the "large" number of insurance providers, explaining that the federation has requested the government to offer tax and fee incentives to companies that decide to make mergers.
"Currently, decision makers are unable to take daring decisions," he said.
According to JIF figures, the ratio of profits to capital revenues is 1.2 per cent, while the capital of insurance firms is estimated at JD350 million.
The sector's average contribution to the gross domestic product (GDP) is less than 2 per cent, while the average contribution to the GDP worldwide is higher than 8 per cent, according to JIF.