The liberalisation roadmap (specifically referred to as the “Phased Liberalisation of Motor and Fire Tariffs” and referenced as BNM/RH/PD 029-8) had been put into effect on 1st July 2016 (by Bank Negara) but so far what have the General Insurers and General Takaful Operators been doing….?
The Post-1st July 2016…. Till 1st July 2017
As of now till 1st July 2017 we can only see submission in regards to submission to PIAM’s IPREB for wordings approval, firstly for those existing products that fall within current tariff framework but somehow part of product’s component or section may require a revisit from the tariff angle, and secondly, some insurers may wish to introduce some new add-ons (or currently called extension cover) of standalone products that leverage on the tariff products, for example passengers’ PA leveraging on Motor Insurance.
Some insurers are expected to cease selling certain existing products or they remove some product components that had infringed into tariff compliance….like the famous NCD Protector.
The Expectation of Post-1st July 2017 till 1st January 2019
In order to pen my thoughts in regards to the post 1st July …. Expectation, I would need to break them into a series of writeup (over a few blogging session) so as to make understanding a lot easier for agents as well as commercial buyers of insurance….
I shall start off with some overviews of what is actually happening in most insurers/takaful operators on behind the scene…., of course besides what we have outlined above.
I supposed there are a lot the behind-the-scene works, much of that got to do with the following:
(For info we emphasise Motor Insurance here as the detariffing (pricing) starts with Motor first; Fire Insurance pricing is not expected to change, at least not until 1st January 2019)
- How best to price the motor insurance /takaful products come 1st July 2017 (for info, this is an important date, the date where the Motor Tariff will be liberalized to a larger extent at least from the pricing aspect and the larger boys are expected to play their kind of game that may sort of challenge the current norms)…. Those who wanted to liberate their pricing matrices (i.e., pricing according to segments and sub-segments) beyond the ±10% margin of the existing tariff premium (factoring in loadings/excess within BNM’s allowable limits) may tender their strategy and pricing methodology to the regulators for approval.
What are the challenges thus far? I guess this comes in the form of….
- How best to get regulator to accept those pricing matrices and methodology adopted…. It is usually in those segmental ranges, where pricing exceeds ±10% range; you must be able to provide the rationale behind them and also not to be overly burdensome for policyholders,
- If the pricing matrices…. are acceptable and approved (i.e., “BNM have no real issue”) then how do we deal with the discounting aspect where we need to cater for corporate clients, special request from intermediaries, etc. This is the real issue for the day-to-day operations; to what extent can we provide a discount on those “approved” pricing matrices or ranges? Should we submit the how’s-and-not’s (of such discounting) during the pricing-submission stages? If the regulator read this, hope they provide the industry with some inklings of what is/are expected, e.g., how about another ±10% margin applicable on those approved pricing matrices (?)
- How do we effectively monitor the success or failure of those pricing matrices adopted? Usually the monitoring and tracking aspects are on the actuarial team but the underwriters are equally responsible on the operational level….dealing with the rigour and robustness of the everyday policyholders’ expectation and market demand.
- Most insurers are putting their actuarial pricings on the marketing board to argue-it-out over practicality, distribution competitiveness and market-acceptability issues; if the pricing matrices are capable of withstanding the test of competition and some exceptional business strategies adopted by competitors out there…. Much would depend on the type of RISK FACTORS adopted for the pricing process.
So, what exactly are these RISK FACTORS? They are basically targeted information that the policyholder needs to provide and the inputs are tagged to a certain weightage or prescribed rating, which at the end of the data-entry process they are totaled up for a final premium. The current tariff also utilises risk factors to determine the premium, in case you do not know. Examples of these factors in the tariff are Sum Insured, Cubic Capacity, Type of Insurance cover and Age of Vehicle/Policyholder. We will discuss this in more details in the next coming blog.
- Explaining the much needed implementation to the stakeholders like the agents and policyholders…. Can insurers explain those adoptions efficiently and effectively to them? The types of training needs to be handled out are important….and also, how can the insurers communicate effectively with their stakeholders especially their policyholders on how to improve on the premium chargeable by having a better grasp of those adopted risk factors.
- At the end of the day, it is going to be the type and level of competition individual insurer will be facing and what should be the response or perhaps reaction to development; different insurers deploy different tactical maneuver, segmentation and pricing strategies to deal with as well as to subdue their more prominent competitors. It is really all about market intelligence acquired and also about decision and nothing more than decisions that could be easily implemented and of course technologically deployed.
- Not forgetting the much need technology driven product-pricing distribution platform…. this is seriously an important aspects, both at the Point-of-Sales (PoS) system as well as the Backend Core system. While the regulator set a condition that pricing should not be changed within 15 days from the last change, they nevertheless do allow for frequent changes to deal with competition that are particular or peculiar to certain segments of risk. If changes to pricing are so frequent then what should be the best application to ensure all those PoS systems are synchronized whenever there is such pricing change, no matter how insignificant it maybe…. Then, we have to review the technology behind a standalone product-pricing rules engine that is interfaced with all available systems that dispense those pricing matrices. What are this rule engine? Perhaps we shall discuss more of this as we gather more interest in this technological introduction….
We shall stop here until the next writeup….
Please provide feedback and also let us know what are those information or ideas that you think is/are important for you and your team to look into; where we should blog about.
Until the next time…. Goodnight!