Detariffing Motor & Fire Insurance and Liberalisation of the Malaysian General Insurance Industry

The (BNM) Bank Negara’s Concept Paper on “PHASED LIBERALISATION OF MOTOR AND FIRE TARIFFS” is out, posted on their kijang-net portal and awaiting responses (until 29 April 2016) from insurance practitioners. I thought of highlighting what I could possibly see and decipher from the very “condensed” write-up. I would appreciate some feedbacks from you guys before I summarise some responses to BNM.

By the way, I am not able to post the full concept paper here as the paper is not supposed to be for public viewing, nevertheless I should provide you with one if you have genuine intention to provide necessary feedback. Kindly provide me with the necessary info within the following contact form:

I shall just focus on the following diagrams (for better illustration) while going through those important points raised in the concept paper:

(A)    sub-clause 8.1: DIAGRAM 1: ROADMAP OVERVIEW

(B)    sub-clause 10.4: DIAGRAM 2: RELATIONSHIP OF NEW PRODUCTS, PREMIUM SETTING AND MOTOR TARIFF

(C)    sub-clauses 10.5, 10.6 and 10.7: DIAGRAM 3: RELATIONSHIP OF NEW PRODUCTS, PREMIUM SETTING AND FIRE TARIFF

TABLE OF SUMMARY 
  IMPORTANT POINTERS RAISED (CONCEPT PAPER) IMPACT ON BUSINESS / OPERATIONS OUR COMMENTS
I

(PHASE I) 1st July 2016 till 30th June 2017:

1. (MOTOR) | Same Motor tariff products continue to be adhered /adopted but insurers are now able to innovate on “new products”, which is in the form of new standalone products or new add-on products.
It is important to note that the BNM/RH/GL/003-8 (Guideline on Motor Premium Loading and Excess), i.e., the maximum permitted loading /excess) shall continue to apply.
(File-and-launch) All relevant documents iro “new product” must be filed with BNM before launch….
(Wordings approval) the wordings iro the new product must be (prior) submitted to PIAM for approval.
(Copy-catting competition) This process has the tendency to breed, “copy-catting” as the (approved) wordings would be made available for all, as BNM encourages the adoption of similar (approved) “new product” by members.

Policy wordings is to be plain-language version….note, there is a difference between the current simplified language and this plain-language version.

The commission is likely maintained as ‘Guidelines to Control Operating Costs of General Insurance Business’ continues to apply.

(Standalone) The usage of “standalone” for new product can be quite confusing, i.e. how does this new standalone product be different from the existing standalone (i.e. core) tariff product? The direction as provided under footnote #3 (DIAGRAM 2) states that this new standalone is more of a package policy of combining/bundling existing motor product & some non-motor (non-Fire) products. This may mean regressing…. considering that insurers (as it is currently) do not need to file-and-launch for such packaging /bundling of common market products around the core Fire tariff based product.
Perhaps the industry needs to further qualify this New Standalone Product (NSP)…. My opinion was NSP in respect of Motor should not be part of the implementation for phase I: 1st July 2016 till 30th June 2017. The New Add-on Product adoption suffices…. otherwise insurers may have to submit to PIAM /BNM their existing package /bundled (obviously caught under the NSP definition) products to comply with the requirements tied to NSP.
(Commission) While we can expect intermediary commission to be similar, can the commission of new standalone / new add-on products to be higher than 10%?
2. (FIRE) | Same Fire tariff products but insurers are now able to innovate on new products, where in form of new standalone products or add-on products Similarly to those mentioned in Motor….(above) (Standalone) Similarly the usage of “standalone” for new product is confusing, and the footnote #6 (DIAGRAM 3) mentioned “long-term” Fire policy as a class of “standalone” policy. My understanding was while we can have a long-term policy as standalone there shall NOT be any deviation from the minimum premium, terms & conditions (or even framework) as set in the Fire tariff. In other words, as was mentioned for Motor (above), it is preferred that such NSP should only be implemented in phase III (2019 onwards)….
(Commission) similar issues as in Motor….
 3. Product Governance, Performance Monitoring and System enhancement Those under the “new product” categories are subject to the numerous (compliance-typed) processes already identified in the BNM’s NEW PRODUCT INTRO guidelines.
The ICT system need enhancement to improve UW capability, tracking and monitoring of UW performances.
Since this roadmap has an in-built market aggression, particularly for Motor there is a need to streamline the New Product Intro guidelines and policy statement to ease the process for new product approval /adoption at Board level… and the investment in strategic/critical software that could specifically assist with speedier UW/business rules creation, i.e., improving speed to market for new products.
 4. (APPENDIX 3) Submission of annual updates To industry associations Expected to work towards better market awareness…. (INSURERS) need to provide updates….
(i) Number of staff in underwriting department that holds Actuarial / Statistical / Mathematical degrees that are trained to a large extent in pricing, portfolio management and direct underwriting.
(ii) Training /education iro consumer awareness and agency capability to explain the process….
II

(PHASE II) 1st July 2017 till 2019:

 1. (MOTOR) | The Motor tariff will be dismantled EXCEPT for the Third-party component which will be BNM controlled; all Existing and New products shall be subject to this Third-party-component control. (Extent of Full Detariffed) The OD, Theft and Fire components of the Comprehensive policy are deemed to be totally detariffed.
(Internal pricing model) iro OD, Theft and Fire must be available….(not sure if this needs to be file with the Bank),
(Third-party component) control of BNM and the maximum permitted loading…. Under Appendix 1 the maximum third-party loading/excess continues to apply.
(Policy Wordings) There was no mention of policy wordings …. Does this means policy wordings for Third-party component is fixed whereas the OD, Theft and Fire components can be freely worded? If this is to be freely worded, does the approval from PIAM still require?
(Commission) What about the intermediary commission?
Deviation from Internal Pricing Regime including special waiver of UW guides by authorised personnel is to be closely monitored and documented.
 2. (FIRE) | The Fire tariff is NOT abandoned and any changes or adjustments must be specified /approved by BNM…. There is no liberalisation or detariffication of the Fire tariff except BNM allows for introduction of NEW STANDALONE PRODUCTS and NEW ADD-ON PRODUCTS that should not have any overlapping or any infringement of the existing Fire tariff. What’s allowed in period: 1st July 2016 till 30th June 2017 continue to apply….This can be interpreted as no real detariffing of the Fire, merely placed under the continuous monitoring of BNM. Status quo as in period: 1st July 2016 till 30th June 2017 but we have proposed to remove the New Standalone Product (NSP) since the Fire tariff framework is still operational.
AGGREGATOR | Motor and Fire products to be made available for purchase via aggregators by 2018. PIAM is expected to draw guidelines to enable aggregator or products comparison sites to flourish…. Insurers /Takaful Operators are therefore expected to pit their products /pricing /terms against one another online. Insurers must be fast in working out their product differentiation strategies to avoid outright price competition….
(APPENDIX 1) (Motor) Maximum permitted loading on third party premium The existing guideline: BNM/RH/GL/003-8 is to be made obsolete. Limited impact expected. Applicable for existing Third-party tariff only
III (PHASE III) 2019 and onward…. (subject to further review at a later stage)
  Not foreseeable at this juncture….

“The NEW STANDALONE PRODUCT as it stands in the Phase I is confusing and should not be there….”

DIAGRAM 1: ROADMAP OVERVIEW
Overview of Liberalisation of the Malaysian Non-Life Insurance Industry

 

DIAGRAM 2: RELATIONSHIP OF NEW PRODUCTS, PREMIUM SETTING AND MOTOR TARIFF
(MOTOR) New Prioducts and Pricing

 

DIAGRAM 3: RELATIONSHIP OF NEW PRODUCTS, PREMIUM SETTING AND FIRE TARIFF
(FIRE) New Products and Pricing
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