On the 30th April 2010, the Non-Life insurance industry held its first open-market discussion on the recent proposed national third party bodily & death (TPBID) Newco and its very sketchy operating model. This event was held by PIAM to obtain feedbacks from the members of the senior management of all member companies.
Generally, the main committee (sitting on the panel) are aligned towards the formation of the Newco for TPBID under the scenario (or option) A, but not without having alot of concerns. For better understanding, it is best if the following sites are checked out before proceeding…
- Bank Negara’s proposed Newco and the alternate operating scenarios (or options)
- New Motor Insurance cover…. taking a glimpse
THE EVENT…. as it had progressed….
Comments from the floor were skeptical of this Newco’s formation. There were just too many concerns and unknowns that the industry would have to go through if it supported this Newco and scenario A. Among the more hard-hitting arguments against the Newco were:
- What the industry actually needed is some across-the-board premium increases to add new lease of life to the current system, but the industry had failed to secure just that for the last 20-odd years. This was what created problem. The implementation of the RBC framework further add misery to it. It is just that VERY SIMPLE….. PIAM SHOULD GET THE CENTRAL BANK TO SECURE THOSE INCREASES AS PER THE PREVIOUS REVISED MOTOR UNDERWRITING GUIDE (RMUT) and not trying to be seen supporting this Newco,
- If the Newco needs to be set up… it is because the government wishes to dispense its social obligations and responsibilities to its citizen. Thus it is very natural that the government should just take the Newco on a 100% basis without involving the insurance industry in shareholdings,
- Some believe that the Central Bank should work with the other critical governmental departments to help improve on the settlement period and also ensure that awards made by courts are in line with the established guidelines as prescribed by the AG Chamber and the limits as set forth in our Civil Laws Act. In this manner the industry can then be more resilient in curbing the rising costs of claims,
- If there are losses suffered by the Newco, these would be funded by all the shareholders……. In this manner, all liabilities are to be backed by the assets of the shareholders of the Newco – NOT just limited by their share capital! Members of the floor felt this is just changing the pay-outs from the current left pocket to paying through the right pocket,
- There are just too many concerns and uncertainties as to how the Newco scheme is to be worked out – felt more like a fantasy rather than something practical, and,
- The VOLUNTARY TOP-UP Liability limit is a sham and it would sort of re-open the floodgates to litigation that we are trying hard to check within the mandatory TPBID proposal. Thus this is counter productive. On the other hand for those who cannot afford to buy the TOP-UP, what would happen to them if the richer third party claimants insisting of suing for a higher compensation….. there would be more poorer folks going bankrupt and this is NOT what Malaysian wants!
“If the house is leaking, we should work hard towards repairing it, NOT construct a new house across the street with the same materials taken from the old house!”
THE COFFEE BREAK…..
During the coffee break after having talked to the participants, it was noticeably most were actually agreeable to the Newco’s set-up but would prefer a different scenario or option other than A and B, which were prescribed by Central Bank. Some felt that a NEW SCENARIO C should be drawn up as a counter-proposal rather than just raising concerns with the Bank.
The RM2 million Limit factor! Many of the participants felt the limit of RM2 million should not be there, because as consumers, we are equally threatened by such “perceived” low limit! According to some industry TPBI claims handling experts, it is not abnormal having third party claimants going after the negligent party for as high as RM15 million.
Like one of the members of the moderator panel, the Newco can structure an Excess of Loss (XOL) Treaty Protection to deal with claims exceeding RM2 million. An XOL programme with a deductible of RM2 million is NOT going to be very expensive. With the scale of compensation and limits on heads of damages, there should NOT be a limit set for total losses claimable, and even if a limit needs to be applied, we should expect nothing less than RM15 million…..“The proposed limit for any TPBID claim at RM2 million is just too low…. Have we forgotten that we are also CONSUMERS?”
BEER-TALK ACROSS THE STREET…..
Discussion continued across the street at COURT YARD…. On the issues of shareholdings, the Takaful Operators will have a real problems figuring out how the heck are they going to comply with their internal Syariah guidelines….. where some of the business may be non-halal! They are NOT able to take any shareholdings in the Newco…. for certain!
Of course, after a few BEERS, people do get more creative and innovative – We can have two separate POOLs within the the Newco – one for all takaful business and the other, solely from the CONVENTIONAL. :….Problems solved!
Now that the reinsurers realised they do have a big business coming up in the Newco…. damned…it! They all disappeared to be back at their office to write their NEXT BIG PROPOSAL to their head office! Well! Who is going to settle the BILL?
ONE FINAL THING….
Not forgetting… whenever the floor speaks, the moderating panel was fast in hammering out this pointer of: “For the past 30 years, the industry did try very hard working towards getting the premium increases and even tried extremely hard in getting the cooperation of governmental departments, including the judiciary in resolving critical processes and removing impediments to achieve prompt decision making…. all these can be concluded as failed! Therefore, the Newco proposal looks more promising now!”
….VOTED as the most effective reply for the day!
The most important reason as to why the Newco proposal sounded promising was the removal of the CANCEROUS portion of the Motor insurance premium, which was never really explained and expounded to the floor… which I would have thought is the most important thing the industry should know about. By “cancerous”, this simply means, the manner the IBNRs are computed for the TPBID long tailed claims had indeed burned holes into our balance sheet and coupled with the manner the internal capital adequacy ratio (ICAR) is being computed within the RBC framework…. the conclusion is SEVERING THIS LONG-TAILED TPBID and have it placed into a Newco is the most sensible thing to do.
Even if the industry did get some increases in premiums, this is not going to be of help in the next two years or so…. and we may have to wait again for 30 years to get another reprieval!
You do NOT agree with me! Shoot me some constructive comments!