(MENAFN - Jordan Times) Insurance firms fired warning shots on Tuesday telling policy makers that prices of compulsory third party liability (TPL) auto insurance must be liberalised.
Speaking at a press conference, Jordan Insurance Federation (JIF) President Othman Budair warned that the sector may collapse if the authorities insist on keeping a lid on prices.
He also warned that insurance companies may sue the government to compensate them for over JD135 million in losses they incurred since the price of the service was fixed nearly 10 years ago.
"The losses have prevented firms from expanding and developing their services," he claimed.
Commenting on criticism that the liberalising may result in higher prices, the JIF head stressed that removing the price ceiling is the best solution for struggling companies as well as consumers, who will be able to receive better quality services.
"The price will depend on the quality of the service. Motorists may even find cheaper services than the current fixed price of JD92," Budair said.
Last week, the Consumer Protection Society (CPS) rejected proposals to liberalise the prices of TPL auto insurance, saying that Jordanians suffer from difficult economic conditions.
CPS President Mohammad Obeidat charged that liberalising insurance prices would serve the interests of insurance companies and described claims that the ceiling on TPL will not result in higher prices as inaccurate.
According to the sector's top representative, a recent study showed that the TPL price at JD126 will only put insurance firms at a breakeven point.
There are some companies that are unable to compensate their clients because of the financial bleeding caused by the fixed TPL price, according to Budair, who warned that there are several firms on the brink of collapse.
Out of the 28 insurance companies in Jordan, he said that 13 firms have stopped providing the service, he noted, pointing out that the number of such companies is set to rise.
The sector's losses in 2011 were around JD27 million, according to the JIF president, who mentioned that projected losses for this year due to TPL may exceed JD30 million.
He indicated that the outcome of a study on the sector, financed by the World Bank, will be out early June.
The study aims at finding solutions for stopping financial losses incurred by service providers.
"January 1, 2013, the JIF will start liberalising TPL prices and we will discuss the mechanism with regulatory bodies," he insisted, noting that Jordan is the only Arab country that imposes fixed price on TPL.
"We are not pushing for liberalising TPL prices in order to make higher profits but to stop the losses," Imad Hajjeh, member of JIF board of directors said.
Asked if the local market needs 28 insurance firms, Budair noted that the government should encourage companies to merge by exempting merging firms from taxes for a certain period.