Direct MOTOR Rebating – How does this works?

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Read Insurance Industry Guidelines on Mandatory Rebating

The Guidelines in respect of Direct Motor Mandatory Rebate (click on the PDF for details of the Guidelines) can be quite confusing, having confused numerous insurers when it was first implemented on 1st July 2009. Now some critical issues were also raised recently in respect of subsection 4.1.1 (highlighted in yellow) – “Motor Business” – whether the percentage of rebating comes the first anniversary year of implementation (1st July 2010) is to be 10% across for all direct motor insurance purchases or given depending on the whether this is the first year of direct purchase or into the second year of direct purchase. Two versions of interpretation:

(1)   Interpretation according to “Case-to-case” perspective

The interpretation during the earlier stages was to allow only a 5% rebate if the direct purchase is made the first time on or after 1st July 2010 and 10% if this is a second time of direct purchase, and so on. This seems to be the fact if we read the wordings from the holistic perspectives of the guidelines and that subsection 4.1.1 should relates to an individual case as it is being issued.Naturally implementation would be a mammoth task.

(2)   Second reading taking the portfolio and implementation date as the basis of interpretation

However, on second reading, this does not sounds like what it was interpreted earlier…..if we read the wordings purely from the portfolio of the insurer where the implementation date being the focal point.

Never mind! That’s perhaps “How the West was won” anyway when coming to getting things moving to a new frontier! Making things easier, it is best to adopt things simple and straightforward as read:

  • With effect 1st July 2009 till 30th June 2010 – All direct Motor (individual) purchases, mandatory rebate is 5% of premium payable, thereafter
  • With effect 1st July 2010 onwards – All direct Motor (individual) purchases, mandatory rebate shall be 10% of premium payable irregardless whether such is a renewal or otherwise.
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Diagram illustrating how the rebating works

Click on the PDF file to see the various scenarios as to how this subsection 4.1.1 should rightfully operate, at least not complicating things any further.
Adopting the latter interpretation is much more simpler, simple in the sense operational processes are much smoother and not much twitching and tweaking of the IT system are necessary. Nowadays, it is good for decision makers to understand the difficult sides of operations – it is easy to make a decision but if this involves substantial downstream changes to insurer’s IT (both front and back-end) systems then it can never be good decision. Gone are the days where committees make decision – good or bad, things were carried out manually, but today any decisions must necessarily involves the understanding of operations, the center of our thinking process.
Do you agree with me?

The Consumers win again…. 

This is another setback for the Agency fraternity but represents greater savings come 1st July 2010 for the end-customers – both individuals and commercial buyers.
a hole in paper
(Cartoon – Uphill task – A special thanks to Yowchuan,http://www.meshio.com)
Another uphill task awaiting the agency fraternity!

Another uphill task awaiting the agency fraternity!

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