General Insurers Affected By Malaysian Competition Act 2010

After many dialogues and interviews MyCC, the commissioner is about to let the sledge hammer down on the industry.

What was the issue?

Having an industry driven agreement to pricing or charges to apply for spare parts and labour costs is a no-no, simply because it conjures a cartel liked agreement. Just as we thought that agreement with the panel workshops is alright, it is also a no-no. 

Why? The commissioner thinks such discounts or charges may serve to reduce the standard of repairs provided to the policyholders. In fact the trigger point of this investigation arose out of numerous complains filed by some workshops whom were members of the national federation, citing that such cartel liked agreement imposed upon them was affecting their capability to provide the level of services that policyholders needed. MyCC would have done their homework compiling the types and numbers of complaints filed by policyholders at the Financial Meditation Bureau (FMB)…. and yes, it is true much of those registered complaints were closely related to standards of repairs. 

Letters having served on Insurers

Not sure what they are going to do next but letters had been issued requesting for further information on revenue earned tied to Motor Insurance premiums (where targeted vehicle make & model are concerned) retrospective back to 2010. In the earlier responses to MyCC, Insurers were adamant that they do not earn any revenue to approved motor claim cases. Instead they pay workshops for services rendered in respect of repair works done to policyholders’ vehicles. But this argument is not good enough. Obviously. 
The Competition Commissioner had issued a notice to require provision of information and document by all 22 insurers and their Association under section 18(1) of the Competition Act 2010. The notice further states the Commission has commenced an investigation against them under section 15(1) of the Act where the Commission has reason to suspect the 23 listed parties have infringed or are infringing section 4(2)(a) of the Act in relation to and agreement to fix prices or charges in regards to the following for the period between (sometimes in) July 2011 and up until the date of this Notice….

  1. fix parts trade discount on certain agreed percentages applicable to vehicle makes, i.e., Proton, Perodua, Nissan, Toyota, Honda, Naza and Proton Saga, and
  2. labour hourly rate for insurer’s own or industry workshop panel at RM30.

“Since the documents provided to MyCC, whether by the Association or the Insurers, had naturally evidenced all the parties involved, they can now confidently specify the parties under the investigation, and insisting all insurers concerned to now provide information concerning their (revenue) gross written premium….”

Is the regulator responding? 

Of course other than merely providing the requested information to MyCC the insurers would have to work with the main regulator since this pricing agreement for the industry was driven by them with the view to stabilise the pricing and charges, so as the insurers do not under-remunerated those workshops for repairs, which would otherwise affect the policyholders financially. We would think the industry have to coax the regulators to come out and stand by them in providing a clearer explanation to MyCC. 

What would be the penalty? 

Accordingly, if the Commissioner requests for such revenue related info, do prepare to be fined…. 
Penalty that can be imposed by MyCC under the laws is a fine up to a maximum of 10% of the insurer’s worldwide turnover.

“If the Commissioner has his or her ways this penalty may be a real pain to the insurer; a 5% penalty may mean at least RM20 millions per insurer if the said insurer is on the top ten in the general insurance market.”

Malaysian insurers moving into a more liberated industry….the competition-confronting issues.

Bancassurance
Banks when selling products cannot force customers to buy their “brand” of insurance. This is clearly the law, even if the scenario is via the use of bundling or packaging. The behaviour may be prohibited under section 4 and section 10 depending on the circumstances of the case.

Preferential Insurance Pricing for Motor Franchise and Bancassurance 
We don’t think insurer can simply create a different set of base of core pricing for the benefit of the franchise of banca clientele to the detriment of the other market customers.

Things are getting really interesting…. 

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