The New Motor No Claims Discount (NCD) practices – Consumers gain, Insurers leak?

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The date, 1st July 2010 will mark another day for a major change to a long established Motor insurance practice…. this time is about the manner the No Claims Discount (or NCD) is to be confirmed. We expect some rough moments ahead as we viewed this new confirmation procedure as being haphazardly handled…. but hopefully not! Was this the reason why the implementation is made to coincide with the day when increase (from current 5% to 10%) in the mandatory discounting for direct motor insurance purchases takes effect? The public if indeed they did face problems with their NCD confirmation, there is still a sweetener to those bad memories!

WHAT IS NCD? Any motor vehicle owners should know what NCD is all about. It is about discount given to policyholder (or registered owner) on renewal if the motor vehicle did not incur any insurance (result of own fault) claims on the previous policy. The percentage of discount allowed would increase over each policy renewal in the absence of any claim made on the policies…. subject to a maximum as prescribed in the policy wording (tariff format). The following are an illustration as to the range NCD and entitlements:

No-Claims-Discount – Claims-free range
1st Year 0% 0% 0%
2nd Year 25% 15% 15%
3rd Year 30% 20% 20%
4th Year 38 1/3% 25% 25%
5th Year 45% 25% 25%
6th Year 55% 25% 25%
7th Year 55% 25% 25%

The Insured is nevertheless allowed to transfer their earned NCD % to a different vehicle BUT only allowable to a single policy-single vehicle at any one time.

THE CURRENT NCD CONFIRMATION PRACTICE…. The existing practice is such that on renewal, the Insured brings his previous policy documents and declare the NCD level at the Point-of-Sale of the insurer or agent’s office- the agent or the insurer’s service personnel would allow the Insured the prescribed NCD percentage. The Insured then make the payment after the relevant No Claims Discount is given.

The insurer would then conduct an NCD check at the backend after receiving submission from the Point of Sale (PoS). This check is conducted with the industry Centralised NCD database, which is currently managed by Insurance Services Malaysia (ISM). If the NCD percentage is incorrect with a higher percentage of discount given to the Insured, then the process of recovering the balance would have to take place immediately. Insurer would make immediate attempt to recover by sending out a registered mail notifying the Insured of the discrepancy, and the Insured must pay up within the next 14 days….“three main reasons why the NCD is incorrect. First is because of an “own-fault” claim having been filed and registered……, second, the previous policy has not expired at time of purchase and thirdly, could be due to the NCD not being updated by the previous insurer(s) to the Centralised NCD database”

Failing to do so would risk having the policy cancelled without any further notice! The act of terminating the cover is provided in the declaration form which was signed during the purchase made at the PoS.

THE NEW NCD MANTRA? Effective from 1st July 2010, all insurers, takaful operators and Malaysian Motor Insurance Pool (MMIP) must have their PoS systems (whether owned by the insurer or by any third party) fully integrated to the Centralised NCD database via the ISM system. Purpose is to streamline the allocation of NCD at the front-end PoS to a more efficient level, reduce operational bottleneck at the back-end as well as improving transparency among all stakeholders, which include consumers. (Point-of-Sales (PoS) system simply means the computerised system at the point where the customer buys the insurance)

What the Insured should expect with this new mantra or practice can be summarised as follow:

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  1. Insurance purchased NEW from an insurer – confirmation of NCD must be obtained directly (call) from the ISM-NCD system at the PoS. “Insurance purchased new” simply means Insured buy his or her policy with a NEW insurer. ALL STAKEHOLDERS MUST IN THE FIRST INSTANCE TAKE WHAT’S CHURNED OUT BY THE SYSTEM AS CORRECT. Any dispute thereto, can only be resolved at the back-end between the relevant parties. Thus Insured must PAY FIRST BEFORE ARGUING….. then work out something via the back-end – meaning if the Insured’s contention is TRUE, insurer will issue an endorsement with premium refund to the effect.
  2. In the case of RENEWAL (with the same insurer), the Insured can rely on the insurer’s back-end system for confirmation of the NCD level.
  3. Insured is still required to sign the NCD declaration form, albeit this time is solely for reason of claim that may either be reported late or discovered at a later date. If a claim is subsequently registered within the ISM-NCD’s  managed Centralised database, there would be a CLAW-BACK of premium due from the Insured – meaning Insured must settle the balance due within a prescribed time-frame.
  4. Since the allocation is very much system driven, the desired end results may not be too efficiently achieved – meaning, DO EXPECT SOME UNHAPPINESS SOMEWHERE BUT, looks like from the existing ISM’s Standard Operating Procedures for Point-of-Sales (PoS) integration there are more GAINS FOR CONSUMERS rather than for the INSURERS. We shall check this out at the later paragraphs (below).
  5. If the Insured is transferring the NCD from his overseas’ motor insurance policy, he or she has no choice but to PAY UP FIRST BEFORE attempting to resolve it at the back-end.
  6. In the case of the transfer of NCD between SOLE PROPRIETOR and INDIVIDUAL (unless done with the same insurer), the current system has no mechanism for new insurer to update the previous insurer…. which means there are possibilities of a LEAK IF UNKNOWINGLY, the previous insurer allowed the NCD to be applied to another motor policy.
  7. While the industry has done numerous NCD-database sychronisation exercises, things are unlikely to be orderly. You know, lah! When such thingy involves database, people, system and processes, the end results are always with some PARALYSIS…. In any case you get an NCD % lower than expected, please don’t go HIGH-BLOOD okay! Just get the agent or the personnel at the Customer Service counter to assist you with the next step. But in any even if you get a HIGHER NCD % than what you should be getting, CONSIDER THIS YOUR BONUS…. keep it to yourself! But if YOU are a GOD-fearing guy, go ahead and bless your insurer, they needed it! “….if you get a higher NCD %, consider this as a BONUS, but keep it to yourself!”
  8. During the initial stages of this implementation, it is expected that things are NOT stable, thus it is BEST you check YOUR NCD online at this site: ISM – NCD Online Check

THE ISM’s STANDARD OPERATING PROCEDURE….. Insurers’ loss but consumers gain! If you are an insurance practitioners or agents, you may be interested to view this file-link:
Please REGISTER BY GOING TO THE LEFT-HAND LOWER COLUMN – once you are registered, you can come back to this site, log in, click on the link and the file will automatically open for this eReport.


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eReport: Point-of-Sales & ISM\'s managed Central NCD database Integration (33)

Analysing from the Standard Operating Procedure worked out by ISM, Insureds stand to gain more in the process (at least that’s for the initial stages of implementation)….. AT THE EXPENSE of the insurers / takaful operators, perhaps. You can read by  clicking and registering for the embedded document here.

Do give us some comment….. MORE OPINIONS MEAN MORE FEEDBACK TO THE INDUSTRY, which also means such procedures can be further improved.


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