Latest Proposed New Motor Insurance Framework – Rakyat Di Dahulukan

PROPOSED NEW MOTOR COVER FRAMEWORK — An extraction from the recent CONSULTATION SESSION WITH INSURANCE & TAKAFUL INDUSTRY on 23rd February 2011

This new motor framework was structured very much differently from the earlier version (refer to Fig 1 below for the outline of the OLD SCHEME) – the following are glaring enough for special mention here:

1.       The new company (NewCo) supposedly to take over the unprofitable Act portion of the existing motor insurance premium is now missing – leaving risks of carrying the Act-cover with insurers / takaful operators intact – reasons being obvious, the government is not about to foot the NewCo’s venture-bill, neither is it going to get hands on in the business of third-party insurance providing,

2.       New key stakeholders now identified… – Police, Ministry of Health, Consumers & Transport group and Bar Council….. and certainly the lawyers are back in business, and the sore point was they threatened to increase their fees by some 400% recently in view of added responsibilities…..

Not sure why the Transporters’ group managed to squeeze itself into this new proposed framework….

3.       The “heads” that relates to insurance-related compensation, including the “sub-heads” were totally ignored in this new framework – in other words there is no cap on compensation (check out Fig 1: The Old Version below),

4.       While there are upward adjustments in tariff premium, there will be reduction (previously nothing of sort was mentioned…) for categories of vehicles having the better part of the claims experiences – to this they mentioned an example in hire & drive and chauffeur-driven limousine, and

5.       Efforts to address the issues within Malaysia Motor Insurance Pool (MMIP) in as far as the service-level rendered to “displaced” vehicles’ owners – outlined plans are:

    • Extending MMIP’s panel of servicing insurers to more than two – the current insurers are Multi-Purpose Insuran and Uni.Asia General,
    • Relax some of MMIP’s underwriting and administrative requirements – flexibility to exempt from annual roadworthiness checks at Puspakom and allowing roadworthiness checks to be carried out at appointed workshops

(“Displaced vehicles” means vehicles that are declined cover by individual insurers as deemed uneconomical to underwrite – some definition coined by the Committee)

6.       The setting up of a Joint Working Committee (JWC) among stakeholders (chaired by BNM) to oversee the implementation — looks more like trouble brewing? With stakeholders coming in from the Consumers Association and Transporters Association as members of the JWC, the Motor Insurance industry is certain to face tougher times….

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TAKE A LOOK — FIG. 1 DEPICTING THE 2010 (OLD) PROPOSED SCHEME

The old TPBID or Motor ACT Scheme in 2010

Fig 1: The Old Proposed Third Party Bodily Injury & Death (TPBID) or ACT Scheme

“Trouble brewing for the industry….. with new stakeholders from the Consumers Association and Transporters Association coming in as members of JWC?

 

In a nutshell this new scheme can be dissected into three main portions for simple understanding:

 

  1. Work with strategic stakeholders to minimise (or eradicate) wastages in claims settlement in a more coordinated manner,
  2. A 4-year gradual increase in Motor Act premium starting from January 2012 till December 2015 with no burden to the lower income group — a four years preparation before motor insurance is detariffed, and
  3. Setting up a Joint Working Committee with members coming in from the various stakeholders — putting additional pressure on motor insurance operations.



Take a look at some of the slides that were presented then….

IT IS GREAT TO KNOW THAT THE POLICE, HEALTH MINISTRY, BAR COUNCIL, LEGAL AID BUREAU AND THE JUDICIARY ARE INVOLVE WITH THE SOLE PURPOSE OF CLEANING UP BAD PRACTICES AND ENHANCING PROCESSES....

 

THE GUIDING PRINCIPLES - MINIMAL INCREASE CONCEPTUALISED AROUND RAKYAT DIDAHULUKAN!

 


ABOUT HOW TO MAKE MMIP MORE ACCESSIBLE AND FRIENDLIER... AND TO BRING THOSE DISPLACED MOTOR VEHICLES FROM MMIP BACK TO THE USUAL MOTOR INSURERS / TAKAFUL OPERATORS

 

AJUSTING PREMIUM... NOT TOO CLEAR, LOOKS LIKE ANYTHING UPWARDS WOULD SOLELY IN RESPECT OF MOTOR ACT PREMIUM BUT IF ANY REDUCTION IS TO BE CONSIDERED, THERE ARE POSSIBILITIES OF AN OVERALL REDUCTION!

 

 

 

LOOKS LIKE INSURERS / TAKAFUL TO MOVE FORWARDS ACCEPTING LOSSES IN THE MOTOR SEGMENT..... WAS THIS ABOUT HOPING FOR THE BEST??

“Is it strategic to bring in the Transporters Association as member of the JWC?”

The POSITIVE sides….  from the insurance industry perspectives

Not much upside could be drawn from the proposal but perhaps…. some adjustments but “soft” ones though. The other more meaningful ones relate much to the proposed EFFICIENCY ENHANCEMENT MEAUSRES – All stakeholders are committed to:

1.       Minimising leakages in the claims settlement system – one notable comment in this regards is to make things more transparent to all stakeholders

2.       Improve timelines in settling claims – from current 1 – 5 years to 6 – 18 months, thus substantially scaling down the long-tail aspects of third party bodily injury (ACT) claims. Process simplification for claimants when filing in a claim

3.       Promote courts and independent mediation, including promoting the use of Legal Aid Bureau

“The intensive use of Legal Aid makes sense…..”

4.       Strengthening guidelines for awarding compensation – for both the courts and insurance / takaful operators to work on…..

5.       Fees for lawyers dealing with bodily injury and death cases to be reviewed…. But not sure how this can be done

6.       Interest rates applicable on awards or compensation would be controlled to the extent better reflect that of the market

7.       Centralised call centres to assist road accident victims….

“Joint efforts in curtailing excesses and wastages within the claims settlement-delivery chain by the Police, Judiciary, Bar Council, Health Ministry and Insurance Industry… are timely!”

The DOWNSIDES….

There are just too many of these….

1.       While premium adjustments are allowed such adoption can only be done on a gradual basis over the next four years, perhaps the percentage of increase may hit 150% ultimately but this would need to be carried out within a time span of 4 years, starting from Jan-2012 to Dec-2015. The greatest setback yet…. This is only adopted for THIRD PARTY BODILY INJURY & DEATH (ACT) related premium only – not much to look forward to!

Adding salt a bit…. Gradual adjustment done over a period of 4 years is also applicable for motorcycles and commercial vehicles; and these are the vehicles that bleed the industry profusely for years with their current level of premiums.

2.       Competition Act 2010 for the Motor Insurance industry segment is likely to be delayed to January 2016…. Thus the question of detarification for motor insurance rating is out of the question as for now.

3.       The implementation of this new motor framework is now managed by a JWC reporting to the Economic Council (EC) – not a favourable thing for the industry having some outside parties dominating or interfering with the implementation process – at least, for now, setting up a NewCo looks more attractive than this current proposal… but then NewCo would be history by now.

4.       The framework is also being designed to bring back those “displaced vehicles” from MMIP into the fold of the insurance / takaful industry but who is going to take the lead? With meager premium increment to ACT only which company would dare bring back the low-making portfolio back into its underwriting books hoping nothing goes wrong on the way to January, 2016? Definitely not sustainable…..

Do you agree with us? Wanna comment…. scroll down below


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19 comments for “Latest Proposed New Motor Insurance Framework – Rakyat Di Dahulukan

  1. Ton
    April 24, 2013 at 17:21

    Hi sir,

    I am interested in your slides as supportive materials in this article. Would it be possible to share the file, please?

    Regards,

    • April 27, 2013 at 10:54

      We do not have any original slide just scanned copies only as these were already presented here in the posting.

  2. Fart Fart Wah
    March 8, 2011 at 19:41

    BANK NEGARA promised to return the commissions cut from agents from 40% TO 10% early in 1985 -1986 for motor insurance. That was a total bullshit, the years have passed , the Insurance companies are getting richer and the citizens have had all the premiums increased for insurance several times. If the companies cannot run the insurance business well then let the market decide. Let the well run companies take over. We do not want GLC companies like M…. , Takaful…. and many others with links to the government to be run like a toddy shop and then we have to come and bail them out by paying more premiums. Half the time those who run these companies are high like being in a toddy shop womanizing and playing golf.

    • March 12, 2011 at 01:05

      No comment!

    • Ali Abdul
      May 28, 2011 at 12:40

      Want to know the Latest in the Motor Market. One Insurance company have raked in RM 100 million in PA policy on the compulsory basis when purchsing the motor insurance policy over the last two years. No with the latest Bank Negara Guidelines on NO Forced Selling of NON Motor on purchasing the Motor Policy, thiomapny have added a New Flavour by Consent and Agreeing to Purchse the PA and ask the Agent to get the Policholder to sign it under the ” Cross Selling” smokecreen. We poor Agents are caught as this company want the agent to sign as witness to this Agreeing to Purchase the PA and circumvent the Bank Negara Instruction nto to Forced Selling of Non Motor Policy on Motor Policy.

      Hi Bank Negara are you reading. PLease do something.

      • May 28, 2011 at 21:35

        I like the word “flavour” – insurance companies do continue with the so-called cross-selling despite BNM insisting this has to go…. Cos that’s a lot of premium at stake! RM100 million, when the co impose RM150 on 100,000 policies each that would be a whooping RM15 million. Then you can’t expert to be a whistleblower against your principal, do youi? So there you are….be prepare to lose the business by seriously explaining to your customer or pass it to another principal who does not practice forced selling. Good luck!

    • IJ
      May 31, 2011 at 11:04

      In the case of Motor Insurance, some Actuary has worked out the pricing model based on the historical claims data and the result shows that Premiums based on Market experience are much higher than what we are paying right now.

      • June 1, 2011 at 12:50

        Yes u are correct, market loss ratio combined > 107%. Quite disastrous. People in authority should work on penalising the bad drivers and not working to suppress the problem playing along with the politicians and consumers associations.

  3. Rose
    March 1, 2011 at 13:12

    Dear sirs,
    Do U think U can also give us a copy of the slides? Those posted here are not too good for they slanted to one side.

  4. February 28, 2011 at 16:30

    Motorcycle increase between RM1 and RM3.50, and cars increase between RM6 and RM34 for the first year of implementation, ie 1/2012. Not too confident this would help even if all the vehicles were loaded, ie. new vehicles also load, which may gives us an additional premium of RM100 million (10m vehicles x average premium increase of RM10) the most. BUt still there are possibilities of a breakeven if we take into consideration the contribution coming from the profits of the non-Act segment.

    • March 1, 2011 at 09:21

      This RM100 million which you are proposing (after commission and expenses) cannot help much with the current total motor insurance losses of ~ RM650 million annually. The industry probably needs an average of RM80 increase in order to even out the losses. Hopefully the so-called efforts to eradicate “wastages” within the claims settlement value chain can be realised….

      • IJ
        March 1, 2011 at 10:25

        To help the bleeding motor boys, significant amount of increment to the ACT premium must be allocated to lessen the severity of BI claims. Increment of 150%, gradually in 4 years??? I dont think this will help much. Motor boys to be at breakeven is far from distance. With the combination of lessening premium due to car age and No Claim Bonus, insurance company still will be at loss eventhough the Own damage claims cost will be the stagnant (i doubt it).

        I guess, even at 150% in 4 years, thereis still going to be a lot of dumping in the MMIP pool for vehicle seeking Third Party policy and also, I believe that companies that forceselling non motor insurance will still enforcing this.

        Detariffing at 2016? Thats a long way to go. One thing I know for sure, once detariff, eg in Germany, they experience price war in which make the premium income reduce sifnificantly but there was a point they will start making money from motor insurace. I heard India also detariff their motor insurance market few years ago, dont know how they are doing right now.

        Overall, I think in the future and it should be soon, detariff is the right way to go. True market price and price based on the rating system. One benefit that I can see is that, when the price is rated based on the drivers experience, drivers might be extra cautious on theirs and others safety while on the road.

        • March 2, 2011 at 01:05

          Yes, things are progressing in a very difficult way for the insurance industry, esp when the insurer / takaful operator is writing substantial motor business… the only way out for them is to load premium beyond the ceiling loading allowed by BNM or perhaps do the force-selling of non-motor products. But with the consumer association and transporter groups sitting as member of the joint working committee, this so-called “unethical” practices maybe short-lived very soon… leaving the only way out.. risk avoidance!

          True the premium rate should be reflective of the driver’s.. be it being driving experience or whether he/she has summons for flouting with the laws, etc… third party related insurance should be issued and tied up with the issuance of the driver’s licence, not attaching to the vehicle. If the person buys a car, then another insurance (OD and Theft) would be purchased to cover the vehicle… The best ever practice I could think of.

          Anyway… it is still stupid to allow Commercial Vehicles to be part of this new proposed motor framework – we are supposed to look after the individual rakyat, not the commercial vehicles’ owners…

          • Anonymous
            March 2, 2011 at 18:34

            Think the insurance industry is overcharging the poor folks out there; by imposing all sorts of requirement like buy personal accident, buy health insurance and forced to pay for excess loading. Old people owning an old are made to run up and down; sometimes pos office said third party insurance sold out and asked to come back tomorrow which is totally rubbish! Sometimes forced to buy 1st party and insist us to buy with sum insured so high eventhough car value is only ringgit 5,000. This industry is ridiculous! I hope insurance companies wake up to reality. insurance companies make money year in year out but just because once in blue moon make loss got to make all malaysian suffered!

            • IJ
              March 3, 2011 at 16:15

              I agree with your grievance over the requirement imposed by the insurer for consumers to get covered.

              But anyway, I don’t think it is fair to say that insurance company are overcharging and also profiting from the motor insurance business. It has been known that Motor Insurance barely making any profit. Bank Nagara Malaysia agreed with this. Premium charged is not adequate to barely cover the losses that the industry experience. First due to escalating amount of bodily injury claim and also due to the premium rate used which is crafted long and many2 years ago. For simplicity, as years when by, claim cost increased while the premium rate is still the same. Thus our premium rate is does not in par with the claim experience in this country and that’s why motor insurance has to bear huge losses and that’s why I think they come up with many creative ways to subsidize the losses they are making in motor insurance business.

              If given the option, I don’t think Insurance company wants to do this business especially on the third party cover. But from my observation, most insurers provide coverage for motor even though their total portfolio only comprises minimal percentage of motor insurance. Maybe there is some kind of regulation for them saying if they want to operate in this country, they have to bear this social responsibility untuk rakyat so that everbody will be covered. Else, if there is no insurance willing to provide coverage, who is going to pay for the losses that we might incurred on third party. Example

              1, A car hit motorcycle, and the owner cant afford to pay. He might be jailed but in the end, the motorcyclist still didn’t get any compensation for his injury (permanent or temporary).

              The relevant parties are making an effort to solve the pricing issue in the industry. It is not aggressive enough to let it be commensurate or equivalent to the market experience but none the less try to increase the price a little bit. When times come for the premium to be priced based on the industry experience, don’t be surprised with the reality.

  5. February 26, 2011 at 15:11

    [New Post] Latest Proposed New Motor Insurance Framework – Rakyat Di Dahulukan – via #twitoaster http://www.malaysiainsurance.info/grapev

    • pakwan
      March 19, 2011 at 00:42

      Hi,i have been in the industry for more than 10 years , being from as staff of the insurers and now running my own agency in northern states. I am glad to hear that government is moving forward on so calll detariff system eventhough it take some times to be implemented, yet the experience such as in united kingdom so to speak, even the differences practices, may be help to be a good example, as detariff means. Insurers even charge monthly premium…though..

      Another aspects is on claim, by sharing my claim working experiences, which is my personal opinions, that we are always overlooking on what the workshops are practicing….from tha spare part prices, adjusters reports, immitation spare parts, quality of works, accidents process, towings process and others …no one pay really in depth attention to these aspects at all…but huge amount of money involves in these process..

      others, with the amount claim for tpbi amounts? lawyers…play a main players here…..anyone ever do some research on these? no one so far……

      So, not only the insurers, making loss but other parties that working together with the insurers making huge amount of profits ……..

      please think and do a study..

      please

      • March 19, 2011 at 22:58

        Well said but it’s not so easy to pinpoint the problems and the issues for there are so many parties involved within the process chain but generally premium is inadequate…. Premium plays a substantial part in this process, of course, the efficiency of the process chain and also the quality of the people behind the it are also an important component in the overall equation – high theft rate but police is not too focus in dealing with it, too long a period required to process a third party bodily injury claim, courts awards that were plucked from the air… and the list goes on.

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