Detariffication of Motor Insurance
Motor
detariffication means that the insurance companies in Malaysia are allowed to
set their own motor insurance prices. If you are considered a safe driver, your
car insurance will be massively cheaper. If you are considered a dangerous
driver, your car insurance will be more expensive.
For Malaysians, regardless of residents of
the urban city or the rural areas, commuting with one’s own motor vehicle has
become an essential part of their daily lives. So it is unsurprising then that
motor insurance forms the bulk of Malaysian general insurers’ gross premiums
(about 44%) as shown in the pie chart below.
Pie chart: Total General Insurance Market Share 2015
There are mainly two coverages in the
Malaysian motor insurance:
1)
Own Damage (OD) policies cover
physical damage to own vehicle and is an optional coverage
2)
Third party (TP) policies cover
bodily injury and collision and is mandated by law §
Comprehensive policies cover both OD and TP.
Industry players view the detariffication of motor insurance as a positive
move. This is because risk-based pricing approach for motor insurance in the
general insurance sector will allow low-risk consumers to enjoy competitive
rates compared to the high-risk drivers.
According to Maybank Ageas
Holding Bhd chief marketing officer, Harvey Chamberlain, low-risk customers
will receive better pricing in motor insurance as the behaviour and
characteristic of drivers will be taken into considerations in the pricing of
policies. Other risk factors of motor insurance include gender, marital status,
age, traffic violations, years of driving, licence type, occupation of owner,
gender and claims history. For example,
Gender: Male drivers are more
expensive than female drivers
Martial
Status: Singles
drive more dangerously
Occupation: Educated people drive more
carefully
Location: (Based on your home) KL driver
are more likely to have an accident
Some of the
major players in motor insurance are Allianz Malaysia Bhd, AMMB Holdings Bhd
and MSIG Malaysia. RHB Research analyst-- Kong Ho Meng told StarBiz that the
central bank, Bank Negara, had been gradually increasing motor premium rates
since 2012, and that the increase of about 5% was marginal and almost similar
to 2013’s revised motor tariff premiums. Therefore, he said, this would not
translate into significant earnings increase for motor insurance players as
costs will move up proportionately. This is because claims, which form a large
proportion of costs to motor insurers, are uncertain and difficult to predict.
The other components of costs are commission and management expenses. He also
added that claims have gone up over the years and so motor insurance is a tough
business and not a very profitable one.
According to Kong Hong Meng, the detariffication of the motor insurance premiums is
still looking further into the details to being worked out and would
incorporate premium bands to prevent the risk of under-pricing of premiums.
Premium band is a type of controlled deviation on premium change for motor
insurance products and the move to incorporate
premium bands would reduce the severe margin erosion for general insurers, in
which this case motor premium has a higher exposure to. One of the reasons Bank
Negara was looking into the premium bands was to ensure that the general
insurance industry would not suffer with full detariffication, which happened
in India and China when motor premiums were totally abolished in the absence of
a strong regulatory capital enforcement. Therefore, insurance players
should not under-price a product if it bears a high loss ratio and places a
heavy strain on its capital adequacy ratio (CAR).
Bar chart: Insurance Industry CAR trend
from 2008 - 2012
According to the
bar chart shown above, the insurance industry CAR has improved over the years
2008 to 2012 and also has improved to 254% in 2014 from 246% in 2013. According
to Bank Negara, the surge in the general insurance CAR is partly due to
refinements in the treatment of premium liabilities under the risk-based
capital framework. However, Kong believes that the detariffication will be a
partial and gradual one that could lead to a slight margin erosion.
Meanwhile,
an analyst with an investment bank said he expected insurance companies to
enjoy better margins and revenue growth after the full implementation of the
detariffing of motor insurance premiums in the next two years. This is due to
the fact that premium rates would be further differentiated in accordance with
the risk profile of individual vehicles. This is a win-win situation for motor
insurers and vehicle owners, as those with good claims experience would enjoy
much better premium rates than those with a higher risk profile.
The General Insurance Association of
Malaysia (Piam) has also stated in a statement that the new motor cover
framework had a two-pronged strategy, that is to enhance efficiency in the
provision of motor cover by the industry, and a gradual price adjustment that
would ensure that the public was able to purchase motor insurance at affordable
premiums.
The detariffication of motor insurance
is expected to be implemented in phases starting from 2016. This is good for
the general insurance market in the long term. Moreover, it also will be fair
for the market as consumers will be paying for their risk. Therefore, it is
only the matter of time for the industry players to be prepared for the
liberalisation and to adapt on the changes, while waiting for the guideline
from Bank Negara Malaysia on how the detariffication will take effect.
Reference
11) Dhesi, D. (2014). Gradual Rise in Motor Insurance Premiums.
Retrived
from
22) Dhesi, D. (2015). De- tariffication of motor and fire
insurance premium expected.
Retrived
from
33) Jayaraman, P. (2015). Risk Pricing for Motor Insurance A
‘Positive Move’.
Retrieved
from
44) Motor Detariffication in Malaysia. (2015).
Retrived
from
No comments:
Post a Comment