Yes, we are arriving at the very doorstep of 2015 and I must say 2014 is not at all a very good year especially with the many preparatory works that needed to be done in order to meet the demands in 2015, the never-before flooding intensity over at the East Coast and indeed, it has been nightmarish for the aviation insurance personnel, having three major air disasters occurred in this part of region; with one big final bang (AirAsia saga) as 2014 is about to go out….says it all!
Taking time off from a busy schedule (I think so!) I would like to pen out my thoughts – maybe along some of those that I think would have made headlines for our industry in particularly to the non-life sector, or perhaps tickle us for awhile going into 2015….
THE BEST RE SAGA
Much was said about Best Re as top management changes and gearing towards run-off. Insurers around the Asia region are scrambling to work things out with them with a hope that they could salvage something financially before things worsen. I understood from market feedbacks that early commutation is one very viable option; and yes…. Best Re do offer reasonable percentage of claim reserves as final settlement for commutation. Nevertheless, the offered percentage differs depending on the country the cedant is located in —- but I am not saying cedants in Malaysia get the better of the lots. However, I was informed that Best Re has ceased having new commutation commitment for the timebeing; simply put, for every commutation contract signed and sealed there are commitments to pay the installments to the cedants and that their coffer has dwindled to a level making it not possible to commit on fresh commutation contracts; at least for the timebeing. Surprisingly the authorities (there be….) are not making much of this — perhaps it is best for the industry to negotiate their own desired outcome….
Look like fronting of risks is on the increase for the Malaysian non-life markets as more and more overseas (re)insurers are revisiting their global network operating within the country — given the fact that there were increasing numbers of foreign buy-out and tie-up with local-licensed insurers in 2014 and the prior years. I guess, getting to the topline is important to make one big, strong and friendly, inspite of the fact that, for every fronting signed and sealed (with a foreign (re)insurer) the output at the balance sheet is not going to look good…. especially under the RBC framework in particularly section 5 in respect of computation of unearned premium reserves. Of course there are other areas of concern in the guise of credit risk charge applicable on large claim pending recovery from the foreign reinsurer(s).
Likewise, the growth in the use of captive (registered over in Labuan) by larger corporation is silently on the increase — you get a situation where insurer fronts (i.e., retaining a small share usually at 20% or so) risks, which are usually property rated under tariff — once the balance of 80% is ceded to the captive (cell captive is now commonly used), the captive company then cedes everything to a line-up of reinsurers who are willing to take a share at a lower rate in comparison to the original policy rate (i.e. tariff driven) — I suppose those reinsurers still gain after taking into consideration the need for them to pay a hefty 32% (on the overage) for treaty reinsurance premium, where under the concept of captive placement they only need to part with a smaller commission of said, 25% on a slightly reduced original premium rate.
PLAIN LANGUAGE MOTOR POLICY
Yes, the committee at PIAM is still struggling with this….despite having many discussions and reviews after reviews for more than a year, especially where the PASSENGER LIABILITY (aka Legal Liability to Passengers) part of the LIABILITY TO THIRD PARTY section is concerned is a hard nut to crack with too many differing viewpoints — certainly, we are not going to get there very soon if the committee does not want to understand the authority or regulator’s aspiration of achieving improved customers’ protection and a higher product certainty! It may even be tougher if the schedule 9 implementation is to be in place for this plain language policy.
REPRICING OF THE HEALTH INSURANCE PRODUCTS
In June Bank Negara has directed that insurers and takaful operators to review their pricing framework all over again…. that is to review internal framework on product and pricing adjustments, where this framework must be approved by the board of directors, and also a clearer communication process with relevant stakeholders like policyholder, intermediaries and the Bank Negara should be in place. However, those re-priced premium rates were actually submitted to Bank Negara earlier with the necessary actuarial certification based on the launch-and-file approach — the Bank would have tackle the matters there and then (i.e. before the new pricing structure was launched) rather than having waited for policyholders and intermediaries to respond before acting. Nevertheless, it is also in the interest of policyholders (people like me who have bigger family than the usual….) to act and get the insurers to engage the policyholders and intermediaries for feedbacks before pushing for rates reform.
COMPETITION AND ANTI-COMPETITION
What’s in the EMGS-Insurance-Packages-for-(Overseas) Students studying in Malaysia until politicians have to step in? I guess EMGS package should not be anti-competitive especially when this insurance package is a compulsory one for overseas students – the Education Ministry should not allow certain party to monopolise and dictate the terms of the arrangement; especially where similar scheme are already available in the market. I suppose the regulators had intervened, with the necessary barriers being removed to allow more players to participate.
Another anti-competitive act noted, i.e. at least that’s what was perceived by the industry, perhaps is in the implementation of Foreign Workers Centralised Management System (FWCMS) by Jabatan Imigresen Malaysia (JIM) – insurers writing foreign workers’ schemes need to link up to the main portal of JIM has to go through the system owned or hosted by Bestinet Sdn Bhd — members nowadays called this a toll…. It seems at the last count majority of the insurers took the hardline stance of not signing up to this request.
FINANCIAL SERVICES ACT 2013 (SCHEDULE 9)
The implementation date of Schedule 9 is 1st January 2015 but unfortunately the important wordings and how the framework is to be implemented can only be firmed up somewhere in middle December 2014 — this makes it very difficult for the industry members to work on their schedule to completion. I bet most are still trying to get the full compliance in place on 1/1/2015. Setting up the IT systems to work into compliance is not possible on 1/1/2015, nevertheless, I think as far as the claims practices are aligned with the Schedule 9 concept and objectives, this should be good enough.
What then is this Schedule 9? Basically in a nutshell is just enabling an operation that is friendlier to the consumer typed policyholders — putting up a proper proposal form and asking the policyholder the correct questions and enabling them to check if their answers are still valid at the point-of-sale — and the policyholders under the Schedule 9 are no longer obliged to provide answers as before, i.e. no more volunteering information and if insurer does not ask then it is not an obligation of the consumer to tell the insurer more than what was asked — if insurer waived proposal form then it is their problem, i.e. they cannot repudiate or dispute a claim simply based on any undocumented information or insertion of a warranty tying to the answers having provided….
So, you know how things are in 1/1/2015? Can be a nightmarish thing for insurers who think waiving or non-completion of proposal form is a good practice…. especially for Health Insurance and Householder-Houseowner Insurance.
PREPARATORY WORKS ON GST IMPLEMENTATION
Damn…. the implementation date has to be on the April Fools’ Day! Why? Anyway preparatory works are incredibly difficult especially if your backend core system(s) is (are) part of a legacy platform. To add on to the already identified problems there are still loads of unanswered questions as to the adoption and best practices — more prominent will be GST that’s being applied to reinsurance transactions — are these to be self-billed (yes, the markets seem to be heading this way) and how would the mechanism be – using the CAB system for self-billing? What would happen if there are amendments to be made to the initial self-billed tax invoice — given the fact that any amendment needed, the documentation must be processed by the party who benefited from that self-bill and not the issuer. Transitional issues seem aplenty — because these are transitional matters spanning 1/4/2015 thus there is no reason for the insurer to set their system logic permanently — those “spanning” difficulties would run their course after a year on but meantime it is giving the personnel a tough time….
In respect of self-billing concept, we are not sure why the Royal Custom cannot be agreeable to adjustment and amendment to be made by the same issuer on the tax invoice procured in that self-billing process (not even in the form of credit/debit note as correction on the original tax invoice issued) but has to be issued by the person who benefited from that self-bill – this would be a good point for argument as to the benefit secured allowing others to bill (or issue the tax invoice) on your behalf.
There are just so many gaps to look into whether getting the system to recognise them or to trying to find the answers that are still very much a “TBA” todate…. Anyway for information, the PIAM GST Guide Book is already out in November 2014; you may want to take a look and make plans to deal with those surfacing issues with your IT department. You may want to download the document by clicking:
For those who wish to know more about GST and insurance or want to engage us further for fresh views of the subject you may want to click to this link: GST Insurance Forum | Malaysia Insurance Forum
MARKET LIBERALISATION (ROADMAP?)
Detariffication (where both Motor and Fire related insurances are going down the free market path) is not exactly a bad word but as the industry probe abit deeper, differing viewpoints surfaced and at time some were wondering why are we so jittery about this…. — the industry is already operating its Marine, Miscellaneous Accident, Liability and Engineering classes without much of a problem. Of course they may had forgotten the combined Motor and Fire contributed some 67% of the overall non-life premium for the country; that’s the very reason why the authority is concerned.
What exactly was being done — understood that there were “negotiations” between the industry and BNM as to what shape and framework should this detariffication takes — should there be some big-bank adoptions or more gentle processes are preferred — supposedly, it is going to be gentle and soft landing sort of preference. Some of the salient points to note (at least that is what to expect in 2016 or in its first year of detariffication….):
- Maintaining a tariff-liked premium base for TPL section of Motor Insurance policy – dictated by the authority with some ceilings in respect of loadings and excess — basically is for consumer’s protection. In respect of Fire, the authority may want to see a 20% to 25% reduction in existing Fire tariff based premium — some actuaries had actually think our current Fire tariff structure is over-priced by at least 40%….
“Don’t quite believe those guys talking about a whooping 40% overpriced….”
- Generally policy wordings are still closely monitored — the regulators should expect an industry standardised version to be followed — I think if we are still not sure what to expect in this area then please look to the Life Insurance industry, they have something to show us….
- Agency commission is maintained to ensure that there be no undesirable competition for agency support. However, agents may have the option of signing up with one or more principals — the current two-principal leaning would likely be scrapped. Maybe there is a leaning towards a higher profit commission payment since it is only fair that profitable agency should be appropriately remunerated.
- Packaging of products in particularly those that relates to Fire and Miscellaneous Accident classes is expected to be on highs. Upselling or cross-selling across classes is expected to increase in order to reduce transactional costs.
- The involvement of actuarial pricing in Motor and Personal Lines is certain to increase — stop short of making actuarial pricing compulsory as in the Life sector or the Health Insurance segment. The launch-and-file method (as in the Health Insurance segment) is not likely to be adopted; maybe the file-and-launch method would feature more prominently — before any insurer launch their products BNM expects them to file their pricing structure for records before launching after a period of 30 days or so…. I wouldn’t want to think actuary determines pricing structure but the insurer concerned must be able to explain the rigor behind those pricing, whether the structures are sustainable for the longer haul.
Having said what need to say, perhaps there are also some sour points in those guidelines issued by BNM like the need to employ Appointed Actuary, Chief Risk Officer and Chief Compliance Office…. Will these new positions bring forth value to the insurer? Perhaps this is likely to push up operating costs and making it even more difficult for those small insurers like, Progressive, Pacific and so on…. Isn’t the Head of department or function dealing with established day-to-day compliance matters capable of monitoring matters and reporting it to a certain committee, i.e. Senior or Central Committee adequate? Isn’t the formation of the Risk Management & Compliance committee adequate to deal with risk management and compliance related matters —- does this needs a segregation to have two different heads? What does this intend to achieve? Look here…. This may be a reality in the more advanced countries but their premium base is so huge and it is not infrequent to find quite a number of insurers having their individual annual premium base larger than our Malaysia’s combined! My opinion is, with so many insurers in Malaysia still writing business below RM1 billion there is really no need to be so ambitious in a hurry! Same applies to the position of Appointed Actuary — do we actually need one at the moment (unless you are a billion premium insurer) and can we not just appoint a consulting actuary to produce the Financial Condition Report? Somehow, if this enforced in 2015, may likely drag down efficiency and triggering costs ineffectiveness — sorry, I may be wrong but that’s reflective of current scenario.
For those positions to be in place….the enforcement should be on those larger non-life companies, i.e. writing a gross premium base of USD400,000,000 perhaps?
While we are already here, let us also listen to Mr. Looi Kong Ming, CEO of Lonpac Insurance Berhad discuss issues and opportunities that accrue to the industry over at BFM – his views are not necessarily mine but it is good to view things from another perspective.
TREATY REINSURANCE RENEWAL
Treaty renewals within 2014 are generally tougher, at least that is what I knew for the first half of the year — reinsurers did have a field-day pushing up the excess of loss (XOL) rates and continued to impose a more expanded list of exclusions and restrictions much to the chagrin of the insurance companies. Of course there were some reliefs in the guise of lower XOL rates for Personal Accident programmes. Nevertheless, in the later half of the year things are more stabilised, making negotiation a lot better — the coming back of Toa Re and at times CCR into the market at a more aggressive manner did help; at least helps articulated the point, “hey! we are back to compete!”. One particular point worth mentioning was GIC Re having lost some vigour in their approach — seem to be less prominent nowadays, preferring either not to quote or to quote solely on status quo basis. Then, you have our usual Munich Re and Swiss Re — they are just not competitive; perhaps they preferred to operate on some tactically-correct understandings and wait for that truly great opportunity to move in. Reinsurers are hard-bent implementing event limit for all catastrophic occurrences, not just for flood — some are pushing for an annual aggregate limit (AAL) to par down exposure in case there are a few events happening in a year.
Malaysian Motor Insurance Pool (MMIP) – where is this going?
Much had been said about this equal sharing animal…. It is just sharing of its ever increasing losses — sometimes we wonder if the industry is doing the right thing with the way MMIP is operating or rather what sort of business model it is operating on — I am sure even if MMIP is for the purpose of accepting risks that were rejected by the (primary) motor insurance market and more of providing some social services, it does not mean it should be making losses — it must articulate a point with the authorities that commercial vehicles must be underwritten on risk-based methodology — any thoughts about using of telematics? Even if there is none …. can’t the rates and terms be more mathematically correct to reflect the risks for predefined risk categories? Worse, we are expecting those smaller insurers to take an equal share of those losses — they just cannot cope!
MMIP must spearhead change in adopting a more mathematical or scientific method of pricing those high risks vehicles / policyholders and not wait for the primary motor insurance market to find a better method and eventually grab risks that are in MMIP’s books leaving them with leftover of bones and scraps. This happened in the past and we are once again, witnessing the repeat all over again….
The following video is equally amazing…. At least with the politician joining in the farce! (Enjoy)
NATIONAL CALL CENTRE (NOW IS ACCIDENT ASSIST CALL CENTRE OR AACC)
In 2013 the insurance industry (including the takaful sector) paid approximately RM1 million (the first tranche of payment) to TM for this AACC services and in 2014, the industry is to pay another RM1.35 million — the ultimate amount is RM7.8 million as far as I could possibly remember. But the millions that the industry would eventually paid are likely for just setting up the industry (unified) call-centre network, and on top of this there are charges for calls actually received from the members of the public. It is difficult to digest why we need to set up this national call centre, especially at such high costs — bearing in mind most if not all insurers had already in place their own call centre and generally operating very well, so why is there a need to set up a totally new centre and whenever a distress call is made to AACC, this is then redirected back to the insurer’s call centre — totally mind-boggling, I supposed…. pardon me if I can’t see the bigger picture in this implementation.
So far for now…. I guess most of you guys would be tired by now! I shall take this opportunity to wish each and every readers of Malaysia Insurance Online, a very happy, happy new year 2015!
Do take some time to refresh on Year 2014 and sing together with us the Auld Lang Syne….moving into another great year of 2015 (ENJOY!) and see you guys soon.