Motor Insurance Pricing… Adopt Risk-based rating, maintain tariff or de-tariff?


Which is better…. Risk-based rating, existing tariff rating with permitted Bank Negara’s loading & excess or doing away with existing tariff?  I really do not know.

If the industry was to advocate risk-based, our politicians and consumers alike would be making a whoa…and..a ha… over it.

If we were to enforce the tariff together with the permissible loading and excess to the dot, we are worry of losing the business to competitors that refuse to join in such a practice, or worse still, we end up losing all the newer private vehicles but attracting more older vehicles or more hazardous commercial vehicles coming into our books.

And, if we were to do away with the tariff, the next moment you should be witnessing a sudden drop in rate by 30% to 70%… a lesson learned from the Indian, Korean, Japan and China markets.

Which one is better…?
1. Risk-based pricing?
2. Existing tariff plus all permitted (by BNM) loading & excess
3. De-tariff

This ever insufficient motor premium syndrome is really a global issue or perhaps a phenomenon, with each and every motor insurance markets facing similar problem of inadequate premiums and runaway claims costs. Whichever way the industry takes, it is going to be some mammoth task.

Risk-based pricing can only work when the current tariff framework is dismantled – something you get to see over at the European markets, where insurers strive to compete with creativity and innovativeness. There is really no necessity to modernise our Malaysian motor insurance segment simply because of risk-based pricing adoption. Risk-based should naturally comes after the dismantling of our Motor tariff.But then, the adoption of Risk-based price will always be flawed and tends to discriminate against individuals – most corporate buyers would have let off from risk-based imposition despite their poor Motor loss ratios because of their ability to demand for the basic pricing, but for the poor individuals, rooms for negotiation is always limited when they happened to fall within a “not-so-good” category!

Surely, you cannot build in those Risk-based factors within the existing tariff without some massive re-organising of our tariff book, do you? If this be some massive thing, how can you expect to do it when Bank Negara is already screening-mad with each and every changes made to the tariff and policy wordings! Okay…. perhaps I am being negative! The insurance industry can still work on risk-based pricing despite operating within a tariff environment…. but we have tried it in a certain way; RMUT1 and RMUT2, where the pricing was lower for the lower risk group, females getting some discounts…. and those falling within the targeted age group…. and blah, blah, blah! Risk-based pricing? A fantasy or what?”


What did the politicians said… “They threw all those resources draining works to produce those RMUTs out of the window and into the industry face!” And now we are fantasizing about adopting risk-base….

On the other hand, are we ready for DE-TARIFFICATION and prepare to go for broke? Certainly…. we are not ready. How can we give up our comfort zone for something not being Malaysian tested? There are just not many practitioners who subscribe to the simple belief that there is always a silver lining after the initial struggles – struggles, no but silver lining, yes! They would rather that the government takes over the most unprofitable segment of the Motor insurance – set up a Third Party bodily injury and death (TPBID) Newco, believing that this should solve all of their nightmares! De-tariff? Leave this to the Gen-X and Y! Let us BBs retire in peace!”

Setting up a Newco simply means a new GLC is to be formed…. but do you think those in the management can make head or tail of the new business model?

You trust another GLC to run something you are not capable of, and for reason of the grossly inadequate pricing, in which you would be reluctantly made a shareholder? Shareholder guaranteeing your share of the Insureds’ losses till the last drop of your company’s assets? Don’t think is logical….

No….. I think I opt for the olde’ motor tariff, and just charge and load as prescribed, which includes those permitted loading allowed by Bank Negara…. of course you would need to do it with strong determination and without fear of losing out to competition! And certainly be prepared to lose it all! Although this is the most sensible thing moving forward rather than wait for the TPBID Newco! But then the industry practitioners are not prepared to give this a go, believing that no one actually would want to cooperate and not wanting to lose out to those who tends to play the “back-stabbing” role!  At least if we cannot trust one another to regulate those BNM-permitted loadings & excesses, let the GLC tells us what to do!”

On the other hand, what if we all actually or managed to cooperate and load with excess as matter of regimental practice? Damm… WILL WE BE PERCEIVED AS FORMING SOME CARTEL-liked operations?

Comes to think about it….. NOTHING WORKS IN THIS MOTOR INSURANCE SEGMENT OF OUR INDUSTRY! Reason being, MISTRUST! Then by all means, wait for the formation of the Newco TPBID…. at least if we cannot trust one another to self regulate, then let government regulate!

GLC it should be!

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9 comments for “Motor Insurance Pricing… Adopt Risk-based rating, maintain tariff or de-tariff?

  1. Anonymous
    June 28, 2010 at 08:48

    Unfortunately most BBs also forgotten many things they have had done or implemented in the past.

    • June 29, 2010 at 21:42

      Not too bad lah! Many BBs are still around and still remember alot of things.

  2. May 24, 2010 at 17:35

    My close friend and I had been arguing about a problem related to Adopting Risk Base Pricing for Motor Insurance? | Malaysia Insurance Online ! Now I know that I appeared to be correct. Many thanks for the information you published.

  3. May 24, 2010 at 17:34

    Good information on Adopting Risk Base Pricing for Motor Insurance? | Malaysia Insurance Online . As I have read other online views on the same I think the details are well reflected on this.It was a good way of spending evening on Monday . I’ll visit again to read more on this website and hope to gain more knowledge.

  4. May 17, 2010 at 00:22

    Trust me risk-based rating is no diff from what underwriters are practicing currently in other classes of business. So there is no need to modernise the industry simply because we wanted to adopt risk-based rating. Just underwrite….. like what we are being trained to. Only thing many practitioners have already forgotten those simple principles and practices of insurance….

    • ganesh
      May 18, 2010 at 15:52

      Yeh! supposed this was some modernised phrase for technical underwriting – the so-called risk base rating. Aren’t what underwriters usually do for a living – charge the appropriate rate, impose the relevant terms and conditions based on the profile of the risks and loss experiences?

    • March 18, 2011 at 12:39

      Well, to underwrite basing on the usual norms is just not enough when motor premium cannot be increased, and that’s some 30 over odd years of stagnation. Anyway what’s need to be done is to reexamine BNM’s sanctioned loading % which was developed back in the early 90s – whether we can find any solution to our current predicament…. Otherwise the industry would have to avoid the loser groups and focus on the standard risk groups, something not so nice to write here but that’s the reality!

  5. May 16, 2010 at 00:00

    [New Post] Motor Insurance Pricing… Adopt Risk-based rating, maintain tariff or de-tariff? – via @twitoaster

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