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….
TAKE A LOOK — FIG. 1 DEPICTING THE 2010 (OLD) PROPOSED 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:
- Work with strategic stakeholders to minimise (or eradicate) wastages in claims settlement in a more coordinated manner,
- 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
- 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….
“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!”
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…..
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