I made a very fast, off the cuff comment to a question posted by my reader on the 6 March. After having a coffee, chit-chat with the other industry practitioners yesterday, I may as well post the comment as a blog posting….. We spent so much time trying to get the facts and development behind this proposed National Scheme – first, we heard it is going to be nationalised but then turned out “not true” and then the next thing was the higher cubic capacity and /or tonnage vehicles were required to buy PA, which turns out not true again! So how the heck are we going to know, bearing in mind we need to plan for the months to come…. With this posting – wrongly or rightly! this should make good reading, at least for some, I guessed!
Very few people actually knew about this so-called National Compulsory third party bodily injury motor insurance Scheme (“Scheme”), since Bank Negara is holding very tightly to the driving seat, supported by their many actuarial graduates busily computing the exposures and pricing… – derived from the available industry statistics. Even those holding authoritative position within the industry were not briefed on what’s the next stage of development or what is to be expected in the coming months.
What we know thus far, are the following elements that may eventually find their way into this proposed “Scheme”:
1. The existing UNLIMITED compulsory third party bodily injury liability as provided in our Road Transport Act (RTA) shall be CAPPED to perhaps RM200,000 or so per injured party. (We are just using RM200,000 as an illustration – the amount may be slightly higher or lower….) And as far as this new compulsory limit is concerned, settlement is on a NO-FAULT LIABILITY basis, ie. all injured parties in an accident (regardless of fault) shall be paid a standard sum as prescribed in the RTA (certain section would need to be amended to insert the compensation schedule). Any party opting for this settlement shall not be entitled to pursue any form of litigation against the other party for additional settlement. But if any of the party opt to sue, then this prescribed compensation is deemed as rejected. Once litigation is taken up against the other party (allegedly at fault), this should lead us to point no. 2 below,
2. Insurer concerned shall defend the party alleged at fault subject to the limit as prescribed in the RTA (amended), ie. RM200,000 cap – not sure if there is any additional provision for defence legal fees.
3. Once the defendant failed in the defence and he or she would have to depend on their VOLUNTARY third party (motor) bodily injury liability Insurance (“Voluntary”) – if this was purchased in the first place, otherwise, the defendant would have to go it all alone with his or her ASSET – this means sell house, sell car (if still got…) or sell body, or worst case scenario, turning bankrupt! Not sure whether the government will come in after defendant declared bankrupt…., BUT…
(a) any such “unrecovered” court awards can be recovered from a newly setup Guarantee Fund – fund which will be contributed by both the government and the industry members including takaful. That is why Mr. Ragunath mentioned the injection of a RM500 million funding….
(b) no worry about the “Fund” because the premium chargeable under the Compulsory Scheme and Voluntary insurance is computed on a “risk-based” basis, calculated every half yearly (i supposed…) – For Compulsory Scheme, it is determined by Central Bank but for Voluntary Insurance, individual insurer would decide their own – unlikely to be tariff.
4. As item 3 above has pointed out – if you are reasonably well to do, please buy an additional “Voluntary” cover on top of this compulsory “Scheme”
5. All motor vehicle owners are required to purchase this new compulsory limit and encourage to take up additional “Voluntary” cover as well.
6. The last time during the earlier discussion, we did proposed “COMPULSORY SCHEME MUST BE PURCHASED BY BOTH VEHICLE OWNERS AND ANY PARTY OWNING A VALID DRIVING LICENCE” With all licence holders joining in to buy, the premium fund size should increase substantially – Well, if you think you cannot afford to pay for insurance as a holder of a valid driver licence, then don’t own one!
I would just stop here…. but the good thing about this scheme is:
(1) The insured has more options – since the existing motor policy coverage would be split up into individual sections: Own damage, theft, third party property damage (TPPD), Compulsory third party “Scheme” and Voluntary third party liability (option to purchase Personal Accident available) Insurance. Own damage, theft and TPPD shall continue to reside within the existing Motor tariff domain. The “Scheme” and “Voluntary” policy shall be operated on a risk-based computed basis.
(2) The Insured is not expected to pay more… but now all licence holders are expected to pay for at least the compulsory Scheme insurance, unless they had already done so as a vehicle owner.
We hope the above have answer your question… and as far as our BAR Council is concerned, don’t really bother about them simply because they are trying to defend their rice-bowl… well! this is natural, don’t you think?
Do comment about this blogpost….. It means alot to information exchanges within the industry.