Competition Act 2010 | Enhance tech-driven tools and not more written rules!

Competition Act 2010 – How much do we know about this? How would its enforcement changes the way the insurance industry currently works? This should not be too difficult if we are to think in terms of DETARIFFICATION of our existing tariff, i.e. Fire and Motor. All we need is to start working towards a gradual detariff process, from now till 1st January 2012, the date of enforcement. Of course the authorities are appealing to the government to have those tariff intact till 2015 – something we had gotten used to but in our opinion they may be successful with the MOTOR tariff but it is not likely for the government to accede to such request if this involves the FIRE tariff….

Lady bosses tend to stick to more written rules and procedures...

According to studies, lady bosses tend to stick to more written rules and procedures.... that's a pain for the new generation of workers!

This is understandable given the fact the motor insurance segment is suffering from inadequacy in premium all this while – opening up the tariff controls simply means an imminent increase in premium – which the amount can climb quite substantially and needless to say is going to be a sudden jump… In this regards the government feels the rakyat would be affected.

However… for the fire insurance segment, there is really no reason for the government to allow the industry to further hold on to the generally profitable segment, thus abolishing the fire tariff as from 1st January 2012 looks set….

Written rules & procedures are a bane….. But if the tariff is on the way out, why are those responsible for technical review and decision-making continue to sit through so many meetings trying to figure out what is the best way to improve self-regulation in regards the tariff-related applications, including various inter-company agreements and then ended up with further rules and procedures to add onto the existing ones?

Written rules and procedures have undeniably been effective in term of injecting in the much needed discipline into the insurance industry. However times changed, and the insurance markets are now operating in more stringent framework – noticeably in an environment where risk-based capital and risk management & compliance are becoming an end game of sort….

“With more written rules, more resources are required, especially where auditing tasks are concerned…”

This simply means the growing demand for audit tasks and the needs to preside over whether a breach is deem recklessly intended in nature or merely a case of error or omission – more resources would be expanded to deal with the various levels of enforcement… and this had proven to be costly as the industry is pushing towards a prudential operating framework. How many auditors would the industry association needs to be employed to check on the practice-level of the members? How often do those sitting in the various sub-committee groups need to deliberate over those compliance issues raised? “Worst…. people just do not have the time to read written rules not to mention memorising them!”

If written rules are a pain somewhere, how then can we replace them? Perhaps it is time for the industry, especially the General Insurance sector to re-think its current practices – habitual writing and rewriting more rules and procedures to add on to its existing ones are just NOT getting us anywhere effectively, less so when operating in a non-tariff environment. But then if we do not write rules and procedures how then can we efficiently and effectively control the members and disciplining them to be more adoptive of the various inter-company agreements, i.e. tariff regulations and agency-related?

The LETTER (an extraction outlined below) perhaps gives us a few ideas… and the following may be an answer to all our written rule-based headaches:

  1. Build more tech-based tools where users at member companies can input the necessary data for an outcome – this is certainly better than users having had to read and memorise those rules…, which in a push-information era, this is not so scalable,
  2. Create a transparent (or some management experts called it “low-tide) operating environment – which means all tool-driven output must be submitted to an opened-portal for members’ viewing and comment if necessary, and with the tools, all computational steps leading to the output thus made visible, and
  3. Enhancing self-policing and auditing among members, something of a DIY-equivalent. And make no mistake, transparency enhances member-driven regulatory process where any error and omission are not likely to escape from detection. “From association-driven audit-based regulatory framework to tool-based open-disclosure regulatory framework….”

Although having such tech-driven tools may not be able to cover all aspects of written rules and procedures but certainly such tools should be able to help deal with some of the more critical controls, special rating for instance…. More importantly, the above would enhance self-regulation, i.e. from auditing based regulation to transparency & disclosure based regulation. This should ultimately reduces the need to continuously beef up resources much needed in auditing and scrutiny processes.

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But even then, tech-driven tools are still NOT getting us nearer to the detariffed environment? 🙄 We could to an extent agree that such tools are not better off than those written rules for the matrices that will make up the tools are very much part and puzzle of those written rules! However, from now on leading to the day of recognition, i.e. the removal of tariff, these tools should be able to help shape the users’ mindset towards a certain operating platform or framework. Thus, there will be some continuities in term of best practices moving forward rather than the industry heading towards some sort of free-fall in rates, including substantial deterioration in terms and conditions of coverage once the tariff is dismantled.

“Reading further… you must have agreed that technology-driven tools can help us prepare for the next best step to detariffication…”

Doing away with those existing Fire Special Rating rules to begin with? Certainly, the SPECIAL RATING committee would be further challenged in terms of resources if the fire insurance segment (having a Sum Insured ≥ RM30,000,000 but < RM300,000,000) continues to be subjected to this thing called SPECIAL RATING, where each and every risks of such category are being mandatory deliberated by the special rating committee before a rate can be provided to the members – how often can they sit for such deliberation… noticeably delays in getting a rate is not something uncommon; not so much that the committee cannot meet their timelines but customer’s demand has reached newer heights!

Perhaps we can take a look at this (part extraction from the one that I have received recently) extraction written by a member in reply to some newly proposed rules with a view to improve the existing SPECIAL RATING procedures. Read here…

An Extraction of a recent reply to the Fire Sub-committee
The Fire Sub Committee(This is pertaining to the recent fire tariff circulars – FTC 00001 and 00002 of 2011 in regards proposed new procedures of special rating…) 

Our comment….

“The Competition Act 2010 will be in operational (targeted) with effect from 1st January 2012, approx a year from now, thus an urgent need to work on the necessary TOOLS to help guide members towards a de-tariffed environment. The two proposals by PIAM Fire sub-committee (FSC) suggested more RULES to follow, which are very much trying to enhance the Fire Tariff rather than working towards a more liberalized operating environment. Moreover, the proposals are likely to make the industry less efficient than before.

What we suggest is to merge existing SPECIAL-RATING practices into the existing SELF-RATING regime. The current SELF-RATE application is working well and clearly can be further enhanced.

What are the steps the industry can adopt? {For details, please refer to our file enclosed}

  1. Self-rating mechanism and framework can be expanded to include risks with Sum Insured from RM30m to RM300m unless this involved IAR-type coverage,
  2. Enhance the existing self-rating (MS excel) tool(s) to cater for risks having Sum Insured > RM30m up to RM300m – the tools should incorporate current SRC’s rate-setting guide – definitely much more easier doing this than coming out with more written rules as per the above FTC 1 & 2,
  3. All member companies are obligated to use the tool to build a self-rate for any risk secured – all discounting factors must be supported with documents. All computation and documents must then be filed with the SRC within 20-days of holding cover, very much a USE & FILE methodology,
  4. Once the self-rate and relevant supporting documents are filed, SRC will publish them into a designated members’ portal – self rates are thus made transparent to all members. “Transparent” in this manner would increase SELF REGULATION among member companies.
  5. Members who detected (or aggrieved by) any errors or deviation committed by other members can report the breach to the SRC and thereafter to PIAM for an audit. In this manner, SELF-REGULATION among members will be enhanced. The main point here is to make our self-rating (including existing SR) process more transparent between members – transparency in this sense leads to better “policing” (self-regulation) among members, thus reducing tendency to breach. Moreover, resources to manage the overall process are kept lean.


Best Regard

So do you agree with the contention as mentioned in this above extraction? Or you do not think lady bosses tend to be more biased towards written rules… please give your comment in the comment box below.

Driving the use of tools in other critical operating areas….This technology-driven rule-based can also be adopted for other forms of agreement, like Premium Warranty and Cash-before-cover (CBC) related compliance, as these can be made real-time within an IT-driven exchange framework….

How to do this…. is not at all difficult if our industry starts INVESTING in building STRATEGIC BUSINESS APPLICATION peoples, peoples who are capble of bridging the gaps – the current gaps that existed in between the technical, operations and the IT personnel.“…investing in strategic business applications, including people development in this aspect is the way to ride the wave of detarification…”

While it is agreeable that this may not be scalable with the current generation of workforce but things are surely changing with more and more Gen-Y workers making their presence felt in the insurance industry. They are more technology inclined in their thoughts and with the much needed training they are capable of taking the insurance delivery value-chain to the next level – a level that may drastically change the operating faces of today!

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8 comments for “Competition Act 2010 | Enhance tech-driven tools and not more written rules!

  1. February 25, 2011 at 09:01

    Think the most important part of the 21st century is all about transparency in everything we do. With transparency in critical processes we see lots more corruption and bad attitude — these things breed inefficiency and incompetence among people. Open all the computation of rates and terms setting and post them for the industry members to access. The members can judge for themselves if what’s being doen fits the bill! If this does not fit, then the doer would be left out hanging to dry!

    • February 26, 2011 at 23:54

      Agreed but I do not think corruption is a factor in this equation……

  2. January 25, 2011 at 08:28

    The question is why IT department of insurance companies cannot handle the development and management of business applications? Ain’t that’s their usual job? Are the IT personnel so ineffective in dealing with such areas of development? If yes, then something is greatly wrong with the training and development of these personnel until they are operationally side-lined!

    • January 29, 2011 at 12:01

      Setting up a strategic business application unit is important now that technology features extensively in all aspects of business development and operations… The industry must be very clear as to what’s an IT department and acquiring technology that are compatible with business operations.

    • February 14, 2011 at 14:17

      Good Question!

      There are various aspects to this particular question, to name a few…

      1. What is the strategic vision of the IT head? Essentially what he wants his IT Dept. to do?
      2. How a company looks at IT dept. as enablers/drivers for growth or supporting mechanism.

      Conventionally, insurance companies IT dept is looked as support function, rather than business value creator, or business driver or enabler. However, the trend is seen changing now days…

      It has been observed that the IT dept. in Insurance company is being overly burdened with the support function of companies various IT systems and most of their valuable time is spent in supporting those applications rather than getting into the business processes and trying to add value to the process by cutting unnecessary process tails. Or take up new development task and manage the project smartly.

      • March 2, 2011 at 14:28

        I agreed with you that IT dept should conduct its tasks as a business value creator rather than as a support function. However, in Malaysia especially in the insurance industry this is still far fetch. For goodness sake, those guys within the IT department are struggling with supporting works within the IT platform….

      • April 19, 2011 at 11:26

        You’re the geatrset! JMHO

  3. January 24, 2011 at 15:53

    [New Post] Competition Act 2010 | Enhance tech-driven tools and not more written rules! – via #twitoaster

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