Market Value for Motor Vehicles

How To Determine The Market Value of Your Motor Vehicle For Insurance?

Check no further…. read this; it is from the Central Bank, The Consumer & Market Conduct Department….

Insurers and Takaful operators must ensure that they (including their agency channel) provide the necessary market value advisory services in respect of advising their customers (those within the CONSUMERS category) on the correct value to insure. Customers should be given the necessary advices along the following lines:

  1. the present market value of the motor vehicle – options as they are laid out:
    • which must be based on the industry’s Insurance Services Malaysia – Automobile Business Intelligence (ISM – ABI),
      • ISM – ABIsystem is solely owned by ISM and ISM is a wholly owned company of the insurance industry, where only members owned shares in the company, or
    • any other credible vehicle valuation database system
      • unfortunately there is nothing in regards this “OTHER SYSTEM” allowed by the industry as yet, so this leads to….
      • an enclosed (or rather monopoly as such….) system in the determination of vehicle’s market value…. – wondered if this posed any issue when the COMPETITION ACT comes into effect in 2012. Merimen and Red Book may complain that they are being marginalised….
  2. importance of insuring the vehicle at the appropriate market value, and
  3. effect of over-insurance and under-insurance when a claim is involved
Market Value of Vehicles, Why not for the Birds?

What's next Big Brother? Already we are dying, still need gravvy added on?

To summarise, this would fall within the existing Endorsement 113 – Motor Vehicle Market Valuation System

In cases concerning RENEWAL of insurance, the present market value should be indicated in the RENEWAL NOTICE sent out to the consumers. Although the Central Bank did mention an option of inserting this into the Product Disclosure Sheet (PDS), it is expected that the industry members should be proactive enough to do both.

 

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Guidelines concerning Market Value  

(Issued By Bank Negara Malaysia)

1.   INTRODUCTION  

1.1    The current market practice of insuring motor vehicles without reference to any vehicle valuation database has not only given rise to over-insurance or under-insurance by consumers but also disputes on market value of vehicle at the point of loss.  The subjectivity in determining the market value of vehicle could potentially lead to abusive practices to the detriment of consumers.

1.2    With the availability of industry motor vehicle valuation databases, insurers / takaful operators are now able to determine the market value of most of the motor vehicles at the point of sale as well as at the point of loss.

1.3    The objective of the circular is to ensure consumers are properly advised on the appropriate market value of motor vehicle to address over-insurance or under-insurance.  In addition, consumers will also be assured of objective determination of market value of vehicle at the point of loss.

 

2.    APPLICABILITY

2.1    The circular is applicable to general insurers licensed under the Insurance Act 1996 and takaful operators registered under the Takaful Act 1984, and their intermediaries.

 

3.    LEGAL PROVISIONS

3.1    The circular is issued pursuant to section 201 of the Insurance Act 1996 and section 69 of the Takaful Act 1984.

 

4.    EFFECTIVE DATE

4.1      The circular is effective from 1 August 2011.

 

5.    MARKET VALUES OF MOTOR VEHICLES

5.1    Insurers / takaful operators and their agents are required to advise consumers during the pre-contractual stage or renewal of motor insurance / takaful cover of the following:-

  • the present market value of the motor vehicle;
  • the importance of insuring the vehicle at the appropriate market value; and
  • the effect of over-insurance and under-insurance when a claim is made.

5.2    Advice to consumers on the present market value must be based on the ISM Automobile Business Intelligence System (ISM-ABI system) or any other credible vehicle valuation database.  The present market value should be indicated in the renewal notice or product disclosure sheet.

5.3    To ensure consistency in the market value of an insured vehicle at the point of insurance and subsequent claim, the insurer / takaful operator should use the same reference database to determine the market value of the vehicle in both instances.

5.4    The present market value should be provided to consumers without any additional charge to consumers.

5.5    If the consumer agrees to insure at the value recommended by the insurer / takaful operator, average clause will not be applicable in the event of partial loss claim.

 

5.6    However, if the market value of the motor vehicle is not available in the vehicle valuation database, the insurer / takaful operator may indicate the current sum insured of the vehicle, where available.  In such cases, the insurer / takaful operator should mention in the renewal notice that the sum insured indicated is based on the previous year’s sum insured, and that the current market value of the motor vehicle may have further depreciated.

While it is understood Central Bank signed off this directive with limited consultation with the industry members, members should nevertheless set it upon themselves to immediately resolve old issues of working out the list of “other” credible vehicle valuation systems, firstly is to provide options to both members of the industry as well as to the consumers, and secondly the industry cannot operate with just one system as unnecessary perception that the industry operates in some non-transparency state is certain to surface.

The other thing that members should work on is the existing rates to pay for the service linkup with the ISM-ABI system…. the charges are perhaps exhorbitantly high!

“Common…. Motor Insurance segment is not any profitable portfolio, on top of linking with the ISM – NCD, some Motor Franchise systems and JPI online the industry  now need to further link up for market valuation information! ….think the industry needs a break too….”

The Consumers’ Perspectives…..

Nonetheless, the consumers are now finding it friendly when buying their motor insurance – getting an appropriate market value and insuring it as such without the nightmare of under-insurance resulting in their insurer penalising them with the need to bear a portion of the repair costs.

Let the buyer beware!

But then do note the pitfall…. despite insuring this on an approved system driven market value, in the event of a theft or total loss to your vehicle, the market value is NOT the value determined at the time of purchase of your insurance policy. The insurance compensation that your insurer will pay you is the market value as prescribed by the said system at that time of loss! Then, who knows…. we may just find a loop hole somewhere to challenge it since the market value is deemed to be the RECOMMENDED MARKET VALUE OF THE INSURER.

FOOD FOR THOUGHTS….. and please comment below.

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11 comments for “Market Value for Motor Vehicles

  1. Jason Tee
    July 22, 2013 at 07:33

    I wish to know why I cannot claim against a motorcycle insurance in an accident which the rider is obviously at fault. I can only claim under ODKFK and I loss my 55% NCD which I have been enjoying for years. I was told I cannot claim against a taxi either in the same sitauation?

    • July 27, 2013 at 14:39

      You should have file a third party claim against the motorcyclist (his insurer) directly.

  2. cheos
    July 20, 2011 at 16:26

    i’m not understand.. what is exactly your point?

    • July 24, 2011 at 19:50

      The pt is, after 1 Aug 2011 insurers and takaful companies must provide the consumer a recommendation of the market value of the vehicle at pt of purchase. The consumer can then decide if the said value is ok. If not he or she can purchase at the value that deem fit…. Otherwise he/she can use the recommended value as the sum insured of his/her vehicle… where no average or underinsurance clause is applicable.

  3. pakwan
    July 3, 2011 at 01:47

    hi, my opinion..how the industry could determine the market value of the vehicle? what are the characteristics?

    The insurance industry ..should also consider the finance company as well?

    what about motorcycles which always be underinsured? How are the calculations on depreciation were made?

    pls advise…

    • July 3, 2011 at 08:53

      Currently there is only one system approved by PIAM and Bank Negara that is the ISM – ABI database system. How those database are derived we are not very sure but as of now we only know ISM pull weekly information from varieties of sources for market value and the main ones are those coming from insurance companies’ (+ takaful) policy & claims database. From the information collected, the ISM – ABI system would analyse the available sum insured of varieties category of vehicles so as to standardise a particular market value to specific model according to age and cubic capacity…. Of course the system do tweak the sum insured with the actual claim amount settled and so on….

      The finance or rather the banks would have their set of market values but do note this recommended sum insured (or market value) is in no way a MUST. It is up to the customer to decide whether he or she wishes to purchase the sum insured as recommended by the database system or insure on basis taken elsewhere, ie. from the finance company….

      As for motorcycle, once the industry is linked to whatever the approved market value database system then it is highly likely insurer / takaful operators would be insisting on the full value. As on the issue of how insurers are dealing with underinsurance…. the current practice is to apply average clause if Sum Insured is lower than 10% of the actual market value at time of loss BUT with the customer opting to purchase on this E113 market value basis then there can be no underinsurance issue….

  4. Andrew Wong
    July 1, 2011 at 16:00

    This suggestion of inputting the recommended market value in the renewal notice is definitely good and proper. The details from sum insured to premium computation should be side by side with that of previous year coverage and present recommendation.

    Yes, recommended sum insured at time of policy effect and at time of loss will likely differs. For example, the car was in general fair condition at application, but 2 months down the road have an accident. The market value will falls drastically. Even with no accident, a new model emerge, the m/value will also falls. Even nothing change, but due to depreciation (which is normally nominal), the compensation will be not be the same as the sum insured.

    It has to be percived that the Recommended market value is an action of good faith & value add service by insurers. Consumers should not and must be barred from taking any legal action on this good intention of insurer.

    The true value of any insurance compensable items is usually at the time of the loss; clearly on principle of indemnity.

    Better still, the ISM recommended sum insured is `fixed’ and cannot be changed unless `apply by the insured through his intermidiary’ which the intermidiary will in turn apply to insurer to change it in order to generate the eCover.

    It must be noted that a slightly over-insurance premium is actually very small compare to a loss when average is applicable.

    • July 2, 2011 at 21:36

      Andrew,
      Not much that I can disagree with your comment. However, once the”recommended SI” is taken up by the Insured, there can be no underinsurance apply in event of a partial loss, i.e. repairs. But then, for theft or any total loss to the vehicle, insurer would still look to the said system (that generated that the recommended SI earlier) for the market value at that particular time of loss, which mean the amount payable need not be the recommended SI.

      However, Endorsement 113 did provide for insurers to adopt the recommended SI as an agreed value, which means over the longer term there is likely to be a shift towards agreed value.

      Just an opinion

      • Andrew Wong
        July 2, 2011 at 23:40

        Agree.

      • Andrew Wong
        July 3, 2011 at 00:10

        Agree this could happen. But in the principle of Indemnity, this is out of the question. The principle of Insurance then would be chaos if this should ever prevails in the future.

        • July 3, 2011 at 08:35

          The notes to endorsement 113 certainly point to this so-called chaos, the E113 provides flexibility to insurer to apply the recommended sum insured as the agreed value where the value is applicable throughout the period of the insurance. It is already blurring but then from the consumers’ perspectives this adoption is becoming friendly to them, things that they could easily understand. For information Kurnia is alsready using ISM – ABI for quite a awhile and they are adopting agreed value as well in the event of a total loss, they would pay the full purchased sum insured, albeitly being applied sparingly though….

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