More options with liberalisation of motor insurance


KUALA LUMPUR: Beginning July 1, a new policy on motor insurance coverage comes into effect, giving Malaysians more choices as Bank Negara Malaysia (BNM) introduces flexible pricing for comprehensive and third-party fire and theft insurance products.

The phased liberalisation announced by BNM in June last year is a game changer for the insurance industry as motor and fire classes account for 66% of the general insurance market.

From July, premium pricing for motor insurance products will be determined by individual insurers and takaful operators.

Persatuan Insurans Am Malaysia (PIAM) chief executive officer Mark Lim said this meant consumers could shop around several insurance companies to choose the best policy for their vehicle.

“Every insurance company will give you a different price. But now with the liberalisation, you will have better choices and can find one that suits you the most,” Lim told FMT.

He added the prices would be determined based on several risk factors.

This followed recent reports claiming the new policy on motor insurance coverage would victimise vehicle owners from the lower-income bracket, as one of the factors considered when determining premium prices was the geographical location of the vehicle.

“It is not just determined by the location. There are a few other factors too, in determining the price of the premium that vehicle owners have to pay, such as owner’s age, occupation and the type of vehicle.

“Only then can insurers consider what kind of premium one would have to pay,” Lim said.

For the past three decades, the premiums which insurance companies can charge have been regulated by a tariff structure.

“The tariff structure is a fixed table. So finally, for the first time, Malaysia is saying that this tariff will be freed up.

“This means the rates that they charge for insurance premiums or the cost of insurance will no longer be fixed by a table,” Lim said.

The liberalisation is also expected to see insurance companies increase their competitive advantage by offering customers creative and attractive packages.

Examples of such offers include discounted rates or the provision of child seats, which are expensive, for free.

“You can insure your pets in your vehicle, too. You can also insure your sophisticated electronic ignition key. In the past, these were not covered.

“These are the new things that are available for the consumers with the new rule,” Lim said.

But innovation alone will not be the only factor insurance companies bank on to attract customers. Lim said the service offered by the companies and how quickly they could settle insurance claims would also play a big role.

“When you have an accident and you have to make a claim, this is when you test the service level of the insurance company,” he said.

PIAM data showed Malaysia recorded a whopping 7,152 road accident fatalities in 2016, which is a 6.7% increase from the 6,706 deaths recorded the year before.

“Speeding. Irresponsible driving. Bad habits. Disregard for safety. So what we are doing in motor insurance is, we are trying to change the mindsets of motorists so they will become aware and change their attitudes,” Lim said, hopeful that the rationale for the new policy would make an impact on the roads.

This kind of change in the insurance industry will naturally require some preparation on the part of insurance companies.

Full market liberalisation

Lim said insurance companies had been preparing themselves since BNM made the announcement on the changes back in 2011.

So many years have passed, and the current motor insurance framework is heading towards the removal of tariffs and full market liberalisation, come 2019.

“Insurance companies have been preparing their systems since then. They have to organise in terms of how they do the pricing.

“They also have to bring in certain pricing engines that can analyse risk-based factors when assessing motorists. And then from there, this rating engine will determine the appropriate pricing to be charged,” Lim said.

The industry is expected to offer new products and optional add-on coverage which will be determined by the market.

From there, further development and refinement of the product and pricing strategies will provide additional choices, allowing consumers to purchase the insurance that best suits their needs.

Over time, premium rates for owners with lower risk profiles will be lower while those with higher risk profiles will be appropriately incentivised to undertake measures to improve their risk profiles.

With all this in line, the changes in risk behaviour might reduce the overall incidence of accidents and thefts, and moderate inflation in claims costs and premium rates.