Reclassification of PA and Miscellaneous Insurances Tied to or Marketed Together with Motor Insurance

Reclassification of PA and Miscellaneous Insurances Tagged to or Marketed Together with Motor Insurance

The General Insurance/Takaful Industry have agreed to reclassify PA/Misc. insurances that are tagged/marketed together with Motor Insurance as Motor Product under the paragraph 2.2 of the Phased Liberalisation of Motor/Fire Tariffs. Products like Passenger PA (whether as a package with other miscellaneous coverage or otherwise) and standalone Misc. Accident package tied to Motor Insurance (like the Enhanced Road Warrior) must now be of the Motor class and financially reported as part of the Motor “Others” or Non-Act.

“Effectively….all PA/Misc. Accident products falling under para 2.2 would be classified as Motor Product”

The following are highlights:

Personal Accident insurance that include any of the following features:

i) The PA element covers unspecified insured persons (e.g. unnamed driver, unnamed passenger, etc);

This refers to the situation where a standalone PA policy provides benefits for any un-named person(s) driving/riding/travelling in or on a particular vehicle, even if the insured or other named person(s) are part of that coverage.

ii) The PA element provides coverage against perils/risks arising from the use of a vehicle, for example accidents while travelling in a specified vehicle;

This refers to a PA standalone policy that is tied to a vehicle whereby an accident involving that vehicle will automatically trigger a claim under the PA policy.

iii) The PA element is packaged with a motor cover (with no option to remove the PA coverage).

This refers to the case whereby a PA policy is sold or bundled together with a Motor policy, and non-renewal of the Motor policy will lapse renewal of the PA policy, even if both policies are not incepted on the same date, or expiry dates are not common.
Treatment of Other Motor Product Types

Related Motor Products other than PA may have been booked under “Miscellaneous” business in the past. By virtue of the definition under the Liberalisation Policy Document paper, it is now re-classed as Motor business. BNM expressed that it had conveyed to the industry during the engagement sessions that any products (new or existing) that meet the definitions in Para 2.2 of the Policy Document will be referred to as “Motor Product” and is subject to all requirements related to the Motor class of business which include commission limits, reserving and reporting requirements etc.

Commission down to 10%

This re-classification would mean the commission tied to these affected products will have to follow that of the Motor class, i.e. 10% maximum.

“This means ENHANCED ROAD WARRIOR (as an example….) is affected…. Commission falls from 25% to 10%!”

The effective date is 1st January 2017 (no more negotiation) but for the purpose of financial reporting purposes, the Central Bank is alright with implementation on the commencement date of the new financial year. So if your company has a financial year end on 30 April 2017, then you would have ample time to deal with the downstream IT change requirements.

Not only the date of implementation is on 1st January 2017, the inception date of such policy must also comply, for example if a policy is renewed prior to 1st January but the inception date is on or after 1st January then there would a claw-back of the extra commission and such claw-back must then be paid to the affected policyholders. “However nothing was mention on whether the insurers should adjust the premium in line with the drop in commission….”. I would suppose this is a non-issue even if the premium is not adjusted, i.e., no claw-back, but in reality this logical thought may turn the other side if the regulators rethink again!”

The following will be seen as challenges to implementation:

  • Reclassification means system change is unavoidable to deal with the processing requirement at the Motor admin module(s) and downstream financial reporting….
  • Agency commission would be affected….
  • Reduction in agency commission ….does this translates into a proportional reduction in premium to policyholders?
  • How those new sets of data are to be submitted to ISM database?
  • New sets of underwriting capability to be acquired by the Motor underwriting department.


What do you think of this new development?

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