The National Third-Party Bodily Injury Liability Scheme…. jumping the gun or what?


BEER TALK OR BLOG TALK?


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!

malaysiainsurance on March 6, 2010 at 22:59

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.

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23 comments for “The National Third-Party Bodily Injury Liability Scheme…. jumping the gun or what?

  1. SUSAN LARRY
    May 9, 2010 at 23:39

    नमस्ते
    मैं श्रीमती सुसान लैरी एक प्रमाणित साहूकार कि निम्नलिखित श्रेणियां में ऋण के सभी प्रकार प्रदान करता है: व्यापार ऋण निवेश ऋण ऋण बंद का भुगतान कर रहा हूँ विधेयकों ऋण ऋण असुरक्षित ऋण सुरक्षित ऋण व्यक्तिगत ऋण के बाहर भुगतान करने के लिए
    वित्तीय कंपनियों हमारी कंपनी आप के लिए सही जगह है.

    हम ऋण की सभी प्रकार, जैसे की पेशकश:
    व्यापार ऋण
    ऋण समेकन ऋण
    पुनर्वित्त
    निर्माण ऋण
    विद्यार्थी ऋण
    वाहन ऋण E.t.c

    कृपया हमें अब अपने वित्तीय ऋण सेवाओं के लिए अब से संपर्क करें इस ऋण की पेशकश क्यों आखिरी क्योंकि आप इस ऋण यहाँ लाने के लिए गारंटी रहे हैं. E-mail: susaninvestmentfunds@gmail.com

  2. April 18, 2010 at 19:47

    Hi, I heard that there is a change in the cap which you have earlier mentioned to be RM200k and THe SUn newspaper mentioned also RM100k; seems the latest reported is RM2 million. Any further comment?

  3. Deva
    March 31, 2010 at 20:05

    First and foremost the obersavations I make are my own and do not in any way represent the organisation I work for.

    Any scheme or plan involving the general public at large which is shrouded in secrecy is definitely not warranted. There is so little information made avail. The two announcements by the Central Bank are wanting.

    When we lament Corporate Governance, transparency and what not – it is indeed alarming (to state the least) – that a proposed change to the legal system of the country itself is not discussed in an open and transparent manner[This obersavation is based on the very many ‘articles’ which suggest that there would be a cap for BI claims]. Even more disheartening is that the custodian of this is supposed ‘project’ is the central Bank which by the tone of the latest announcement in the The Star is likely to bulldoze this through by 2nd half 2010.

    Why the secrecy? Why the urgency? Could TPBI claims cause Insurance companies to collapse between now and end of the year?

    My take, though not substantiated by facts, is that the current system of handling claims is flawed. Instead of capping the liability (if that is true) something should be done to the system.

    We need data as to what the loss breakdown on TPBI claims – expenses (legal/adjusters/what else) vs damages paid.

    Anyways my advice would be detariff motor and fire without any changes to the cover and let the market forces decide the premiums.

    The better managed underwriters would definitely have a leading advantage.

  4. Poor Rakyat
    March 28, 2010 at 18:08

    This is really unfair. BNM are proposing scheme based solely on the needs of insurance companies.

    No consultation with the public or related parties was conducted.

    the scheme as proposed would mean that the general public will be denied universal insurance coverage . So if you get injured in a motor vehicle accident you will be getting involved in a lottery. If the person who caused the accident has Third Party cover as proposed then good luck to you and your family.

    You will be at the mercy of fate. This is not what insurance is all about.

    The only reason we are having this amendment is because insurance companies are losing money. If that is the case find ways of mitigating loss.

    This scheme is a total sham and denies Malaysian motorist adequate compensation.

    If BNM allows this scheme – Shame on BNM.

    • March 28, 2010 at 22:19

      Dear Poor Rakyat,
      The scheme that was being worked out by BNM is not something bad for the rakyat… neither was this calculated solely for the benefits of insurers only. This is purely a misconception, obviously some quarters have been putting negative things into the mind of the people. When the industry raised the “no fault liability” scheme, there were lots of resistance by the legal fraternity and those from the insurance practitioners group. Then politicians and the judicial also got involved! Too much and unnecessary arguments – totally a waste of time and therefore the rakyat’s money! So when this so-called national TPBI scheme was coined, it was best BNM worked on a proposal first with numerous options (without interferences) before moving to the next level. I cannot be the spokeman for BNM but BNM has always been supervising the insurance industry with the rakyat in mind first and foremost! And that’s a pain….. for the industry, sometimes taking away the creativity and innovative sides of the industry.

      How can you conclude that the general public will be denied universal insurance coverage or their rights in torts when > 80% of the rakyat’s third party bodily injury claims were driven by those within the “runners” fraternity for so many years! Many cases went to court with the promise of lucrative settlement but ultimately the claimant merely gets a small percentage of it all. Many of these cases were financed by certain quarters who have interest seeing the case goes a long and winding path at various court levels…. simply because the courts provide interest of 8% per annum on awards and courts were always perceived as insurance company bashing….

      Who would want to get involve with an accident, man! this is troublesome affair! Worst if you were injured in an accident through your fault or otherwise, you would be compensated with a list of prescribed benefits – you would be most happy to take it and move on rather than getting the lawyers to fight the case and after four to five years trying to establish who is at fault and then the award, you are still getting the same amount, with your lawyer taking a bigger cut of it! SOo why not take the easier path….THAT’s WHAT THE RAKYAT wants! While the party at fault for the accident would be able to claim on basis of a “no fault liability” basis (if this becomes a reality……) he or she is still penalised with heavy premium loading when renewing his or her policy and including having the licence suspended…. If the other option where compensation as prescribed is not applicable for party at fault (scheme similar to those in Japan), then going to court would purely for the purpose of establishing the party at fault!
      Therefore I am not too convince that this is a LOTTERY sort of thing! Every compensation is accordingly to incurred expenses subject to the limits prescribed in the Scheme of compensation – thus if the incurred expenses are lower than you don’t get the maximum amount…. There may be people staging a claim but compensation is still based on reimbursement and incurred subject to the limits laid within the scheme of compensation.
      Whichever option the scheme takes, there is no lottery, compensation is not at the mercy of fate (BUT if litigated, then I would think there is a higher element of fate!) and nothing being unfair…. because at the end of the day, the aggrieved party may chose to litigate!

      There is no scam in the design of the scheme.. statistics tell us the 80% of the TPBI claimants were never adequately compensated despite given the courts award! Because those litigatious cases took a long time to conclude, the claimants are at the mercy of the system…..

      The scheme is all about compensating the aggrieved party as fast as possible (money in hand is always better than a promise of better amount in a couple of years later!), yet working with the relevant bodies to penalise those drivers at fault, in which their license can be terminated….. but yet provide the avenue for the aggrieved party to take the litigation path! So where is that sham and scam???

    • Poor Rakyat
      March 29, 2010 at 17:25

      Firstly thank for the reply. There are a few isseu sthat I want to highlight.

      The current scheme of a Liability Cap is actually lifted from the practice in more developed insurance markets . In those markets ie Europe and the US it is possible and logical to have a monetary cap.

      These are Welfare State societies.If you suffer from serious bodily injury the state pays for most of your medical care . In the event you are not able to work you are able to claim Unemployment plus disability benefit for life. The state will even pay for a nurse to visit your home to take care of the needs of the disabled. nurisng home requirements are even provided for. Remember that in the US insurance is regulated by the state government hence wefare benefits are a key component of monetary caps. Welfare and unemployment are largely provincially and state controlled in the West.

      BNM has basically proposing a Western style model to implement here in Malaysia . We do not have state welfare benefits to help those who face unfortunate disability. BNM approach is not suitable for a Malaysia context.

      Secondly every one in the industry know that 90 % of all bodily injury claims in Malaysia are motorcycle related.

      Motorcyclists are the largest group of Third Party motor vehicle insurance subscribers. Hence this move by BNM will hit the poorer members of our society. Capping motorcycle claims is a huge profit booster for insurance companies.

      Thirdly I disagree with your argument that runners and lawyers are the biggest beneficiaries of teh current system. The system now is actually very fair to the claimant. By and lareg adequate legal representation is provided to claimants. This scam that you are referring to is a myth . There are some instances of fraud but that is applicable in all legal jurisdiction.

      No Fault Liability schemes are a failure. Please refer to teh experience in New Zealand and America. It has not worked because of drastic rise in fraud. It also penalizes innocent motorists who have to equally bear the costs of bad negligent drivers.

      Byteh way I think you should look into the revolution taht has taken place in the Malaysian courtsd in the last two years.

      Since the new Chief Justice Tun Zaki took over . motor claims are settled in copurt within One ( 1 ) year of filing. This is the one of the fastest settlement rates in teh world. If you file a claim in court now you will get a judgementy within 12 months. So please check this fact. The legal system is working.

      By the way we already have a Insurance Tribunal System in work in Malaysia. It is supervised by BNM an dis for the adjudication of disputes between insurers and claimants. It operates out fo Medan Tuanku. \

      This Tribunal is slow and a total waste of time.It takes an average of 36 months to try and adjudicate a simple dispute. Most Claimants now prefer to go to court.

      I disagree with your claim that 80 per cent of claimants are unhappy with litigation . KI

      • March 31, 2010 at 00:27

        Firstly, thank for for this great exchanges of opinion… we valued them. Let me also share some of our opinions here:
        1. Welfare states – we should not be calling Europe and US as being welfare states… Malaysia is equally the same although in a different aspect, perhaps we use terminology like “subsidised” or “waiting for hand-outs” or “applying for special privileges” state to describe the situation that we are all in. In those advanced countries, their governments focus alot on umemployment – it is just that, nothing special as they recognised this to be the biggest menace or threat to the nation if unemployment is not properly treated!

        2. A monetary cap to compulsory ACT claims is realistic simply because 80% of our population are living either within or below the moderate net income level. Thus if we put various caps and limits to what a third party claimant can claim, said the maximum in toto at nothing more than RM200,000 it is fair. Everyone gets the same sort of treatment, ie. capped at that amount… whether you are poor or rich. Thus for the richer group, they can buy in addition, the voluntary ACT scheme to protect their asset in case the aggrieved third party decides to litigate… the richer person can also add in a specially discounted PA for himself and his family members in case the compulsory ACT compensation is exhausted. So by splitting the current ACT into two parts is fair – the lower income earners can just buy up a compulsory cover, full-stop, but the richer Malaysian can always take up a voluntary (higher up) cover, and with PA if he further wishes to enhance PA cover. Of course all forms of compensation (both compulsory + voluntary) would be frozen in event any party wishes to litigate. However, this can only be made more effective if an appropriate penalty system is put in place… Kejara must be further improved. And, this can only work if the alleged party at fault does not wish to contest his or her position. This works in JAPAN with the CALI system, thus it should work out well for Malaysian. Simply puts, such practices of settlement promote a lesser litigation mindset as litigation simply means SUSPENSION of the scheduled compensation amount! Even if you won the case, the compensation amount is still based on the prescribed schedule of compensation….. therefore if you had been declared the aggrieved party, there is no reason to litigate – just take the money and move on!

        As to the no fault liability proposal, this may also works but then the cap would be lower, perhaps that was already reported or speculated in the press recently – RM100,000 per claimant maximum. I am not sure if litigation is allowed in such scheme…. but it would be unconstitutional to block the rights of the aggrieved party to litigate. I supposed if the litigation is pursued, the schedule of compensation would equally applied, thus contracting out the rights of the judges in making any monetary award.

        But it is difficult to predict the ultimate outcome…. you know, BNM is unpredictable and unassuming!

        3. Motorcyclists form the bigger chunk of the TPBI claims – I do not agree that 90% of the TPBI claims (whether on numbers or on claims quantum) were iro motorcyclists. Anyway, most claims involving motorcyclists never got pass the RM200,000 amount. Usually if the motorcyclists were involved in major accident, the result is usually death – simply means the compensation amount is certain to be much lower than if he was alive! Very sorry for that…. It is unlikely insurers will save from this capping exercise…
        But, insurer should get more premium from the license holders who did not possessed or owned any motor vehicle or motorcycle…

        4. The runners, touts and legal practitioners fraternity…. benefited substantially from the claimants and although short of calling it a scam, is not a myth… this was well reported in the news including in the Bar website. News report even mentioned that this fraternity financed the claimants while the case is in progress, in most incidences took more than 3 to 4 years to litigate. “Finance” or “loan” as the newspaper reported…..means interest were charged with contingency fee! So what sort of amount does the claimants actually get at the end of the day??? You can read this article in the Bar Council website – http://www.malaysianbar.org.my/legal/general_news/push_for_higher_figure.html – pushing for a higher figure!

        5. No fault liability is going to be a failure – may not be true for a country like Malaysia. No one wanted get into an accident, and if an accident actually occurred it is also not for the insurer to work towards penalising the party at fault, and taking the case to a long-tailed litigation process… THIS IS NOT OUR JOB! The insurer’s job is to get case settled promptly….. and thus par down the effects of the RISK BASED CAPITAL framework!
        6. I am not a fan of Tun Zaki – fast settlement does not means efficient judgement! and that’s what the Bar Council is complaining about…. poor quality judgement!
        7. Insurance Tribunal???? Like you have said it correctly, it is simply ineffective… therefore with the various TPBI or ACT options under the national scheme, we can cut down the involvement of the Tribunal!

        Well! this is all I’ve got at this very moment….

  5. steven
    March 23, 2010 at 15:24

    The above,If its going to carry out,what would likely happen to the consumers?
    01)In term of Premium ? Increase?
    02)Availability of coverage for Cars above 20 years old?
    03)3rd party covergae availlability & it cost?

    pls share..thanks

  6. steven
    March 23, 2010 at 10:53

    About the above changes,If its really takes off, What will be the effect to the public in term of :-
    A) Premium Increase?
    B) Availability of coverage for those “OLD” above 20 years old vehicle?
    c)Availbility of 3rd Party coverage?
    Appreciate your sharing..Thanks

    • March 23, 2010 at 23:47

      As the Star newspaper has reported today, everything is still under discussion stages, but the BN already have a few plans in place. Depending how and which option is preferred at the end of the day, (A) generally we should expect premium increase in Compulsory TPBI premium and Voluntary TPBI layer (because of the PA element), OD – probably flat, Theft – likely increase depending on model but discount allowable for security feature, TPPD – expected to increase by at least 50%… Overall, premium chargeable is risk-based inclined, ie. more saman more loading, and once accident identified to be at fault then loading penalty comes in. It is not going to be lower than before, but generally still lower if purchased from MMIP. Since premium is expected to increase across board, the government is using our FIRE portfolio as a trump card to diffuse situation, ie. there will b a 15% discount across all fire tariff rates. In addition, the government is also using “buy direct” campaign to soften the increase! Agents would be generally affected!
      (B) There will be cover available for old vehicles, you can get it from MMIP as well as from the insurers – my little bird told me that insurers can compete with MMIP with the latter’s terms and conditions…. (C) No issue with availability of 3rd Party coverage – simply because the usual 3rd party would be split into TPBI (or ACT) compulsory, TPBI voluntary + PA option and TPPD – loading would be much higher, maybe up to 150%. Of course bear in mind, the TPBI compulsory section is on a prescribed amount for the aggrieved parties…. similar to the Japanese CALI. But we cannot discount the fact that there may be “no fault” liability scheme…. if the CALI version is rejected – this is why we have a show..”Who killed the BAR?” Anyway with CALI version, the legal fraternity is less wanted already!

      At the end of the day, the industry should have a much larger motor premium base than before… adding MMIP, conventional insurers and General Takaful operators. But then at the expense of the FIRE portfolio! The other reason that boost the motor premium further would be enforcing all owners of driver licence (except vehicle owners) must buy at least a min compulsory TPBI cover…. This can be very substantial..

      Ultimately whether using CALI version or no fault liability scheme, the main winner for the insurance industry is that it takes away all the long-tail stuff from our motor books! This means lower IBNR computation by the Actuary, if you don’t see any rising IBNR month in month out, then there will be more certainty with financial reporting!

      Then hopefully I got it right…. because I have too many little birds telling me too many news, to an extent, diarrhoea causing!

  7. carl
    March 12, 2010 at 00:27

    Think if to request a group of people having driving license but with not owning vehicle to buy compulsory insurance then it can be trasnlate by the politician into something burdensome for the rakyat. Now with the proposed no fault scheme, what would the Bar Council do? Thye will surely rebel against the government cos, bread and butter gone!

    • March 12, 2010 at 20:03

      I think by now Bank Negara would have at least three options or alternatives in their bag. From our sources, I think one of those involved “no fault liability” scheme. In respect of those driver license holders who owned no vehicle but made compulsory to buy the scheme, I think this is only fair – according to statistics (you can pimp them from the ISM-KMS) many of those involved with serious accidents were non-vehicle-owner, and they are young and perhaps….dangerous! THus there is no reason why these category of license holders should not be called to pay in the new scheme.
      Whether politicians and Bar Council,,,, let them rebel! THe industry has no choice with a tariff pricing that had never been reviewed for more than 30 over years! Moreover, limited loading is allowed by the Bank….

  8. Tell Me More
    March 11, 2010 at 09:58

    It would be great if you could provide references (guidelines, links, etc).

    • March 12, 2010 at 20:06

      Currently everything is P&C and can only be found in the Central Bank’s bag, thus nothing to link up officially. THis blog posting is merely a result of a summary of all findings at ground zero, ie. qualitative intelligence…

  9. bloggie
    March 10, 2010 at 22:05

    This means owner of vehicle has to buy insurance, then his wife and those of his children who have driving license but not owner of vehicle, must buy insurance for both compulsory third party bodily injury plus voluntary as well. wouldn’t this be costly?

    • March 12, 2010 at 19:34

      Yes, currently under such scenario, only the father buys insurance. Looks like if the scheme is structured in manner as per my description, then it would be more costlier for the family. BUt it has to be this way, because those who have driving license may possibly drive and in this case the children may take the father’s car out for an evening – the exposure is always there! Thus it is fair the non-vehicle owners be made to subsidise as well.

      • bloggie
        March 14, 2010 at 10:47

        that’s bad for all the young girls and gals, don’t own a car and may not be driving for awhile unless boyfliend and papa allowed and yet buy insurance.wtf for lol!

        • March 15, 2010 at 00:16

          Owning a licence means you can drive, and you may take your father’s car for a round – this means an exposure to motor accident that may result in third party bodily injury!

      • March 23, 2010 at 14:41

        getting complicated yeh! suspension just likie thriller

    • twitblogger
      March 13, 2010 at 13:43

      this twitoaster is good – it really toast up those postings. way to go man!

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