What will insurance consumers face with the recent National Automotive Policy (NAP) review?

The recent revised National Automative Policy (NAP) has outlined the gradual phase-out of imported used vehicle parts and components. The government has raised concerns over safety and environmental issues from continuing with the practice of importing used parts and components without any restrictions or mandatory tests. Thus this NAP review would be introducing a mechanism to prohibit imports of used parts and components effective June 2011. And by June 2011 the import of used commercial vehicles would be banned totally…. It is important to note, all imported used parts and components are very much cheaper than those manufactured locally, and those imported used commercial vehicles also provide cannabalised vehicle parts for the used parts industry…

How would these decisions affect the Motor Insurance industry as well as the end-customers?


From the insurance industry perspective, it is not uncommon for claims personnel to tweak the part prices when assessing the claims quantum – the tweaking is to put in some second-hand / cannabalised parts as replacement for the damaged ones, which means the Insured need not make any payment for the costs of betterment compared where new parts are used in the process. Those used parts are indeed important in scaling down costs for the industry in containment of the ever deteriorating loss ratios. Ultimately the Insureds did benefited from the second-hand vehicle parts industry. While the facts are such, caution should not be thrown to the wind – the escalation in theft of motor-vehicles is also the result of increasing demand for cheap cannabalised vehicle parts!

From the consumers’ perspectives, especially those having vehicles aged more than 5 years old, those cheap used parts from the half-cut shops made maintenance affordable. Most car owners or rather their vehicle repair shops can buy headlights, doors, seats, rear lights, complete engines with gearboxes and even engine control units. For the commercial vehicle operators, there are adequate supply of second-hand truck cabins for sale, thus lowering the maintenance costs of their operations. The truck and transport industry copes with cut-throat competition by relying on cannabalised and second-hand cabins, engines and gear-boxes. Nobody is damn stupid to use brake pads…. so what was our government officials saying about in respect of safety issues!

The real fact behind this so-called safety issue is not about domestic but foreign safety. Some of the  lesser developed oreign countries like Egypt buy second-hand vehicles from Malaysia. Unfortunately, due to lack of monitoring… and the thriving in foreign demand, Malaysian join-half-cut cars managed to make their way to those countries. When those vehicles are involved in accidents and split up on impact, the blame game starts – those cars came from Malaysia. Our Finance Minister was ill-advised in the sense that there are not that many half-cut cars in this country anymore…. so why such decision to prohibit?

In the absence of such second-hand used or cannabalised parts, what would be the effect to the used or older vehicles owners, especially for those having vehicles exceeding age of 10 years?

Claims Settlement (A simple illustration) (in RM)
Replacement parts Price for Used Price for New % betterment for New
Parts A 500 1,000 25% or 250
Parts B 700 1,200 35% or 420
Parts C 1,400 2,900 10% or 290
Labour 1,000 750
Total 3,600 5,850 960
Customer pays 0 960
Insurer pays 3,600 4,890

In simplistic sense, the insurance industry would have to fork out an increase of 35.8% (RM1,290) in repair costs but Insured would have to dig deeper to reimburse the repair-shop the sum of RM960.

There are millions of vehicle (> 10 years in age) owners in the country… and will they suffer for those decisions. If the minister was to go ahead with the ban, then he should also remove the taxes that make new cars and spare parts prohibitively expensive. If auto spare parts were to be cheap as in Singapore, few would choose to use the old ones…

So…? Are you preparing for the bad times or are you going to blog about it so that the government starts doing something positive?

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