New Motor Cover Framework Finally Comes

When I worked with composite insurance companies (i.e. doing both life insurance and general insurance) some years ago, I involved in analyzing claim experience for each product line and calculating IBNR (Incurred but not reported) reserves. Every time I looked at the terrible loss ratio of “Motor (ACT)” and “Motor (Others)” classes, I would pray for the detariff of motor insurance premium rates coming as soon as possible.

I’m glad to hear Bank Negara Malaysia’s (BNM) announcement via its press release on 6 January 2012, revealing the New Motor Cover Framework. According to the press release, the gradual revision in the Motor Tariff premium rates will be implemented effective from 16 January 2012, over a period of four years (2012 to 2015). The Framework will pave the way for detariffing of the motor insurance premiums in 2016, in which premium rates will be further differentiated in accordance to the risk profile of individual vehicles and fairer to vehicle owners as those with good claims experience would enjoy much better premium rates than those with higher risk profile.

Although the detariffing is not implemented immediately, I believe the gradual annual revision will gradually improve the room for general insurance companies to continue to breathe – the existing tariffs has been in place for more than 30 years (such as long time!), which are definitely not reflecting the current experience. Implementing gradual annual revision is a good strategy, which will help to reduce the objections from public and prepare the public for the “true” premium rates of motor insurance. For example, the premium adjustment for a private car of 1,400 cc, will be between RM6.00 - RM34.00 per year, which may looks less burdensome to the public. As motor insurance significantly affects the mass (the level of car ownership in Malaysia is very high – “thanks” to the inefficient public transport), any drastic increase in premium rates will definitely translate to the reputation risk and PR challenge to the insurance companies. Just like health insurance, the insurance companies are easily described as the “bad guy” that “bullies” the “helpless” public.

On the other hand, the detariffing of motor insurance will definitely create additional job opportunities for general insurance actuaries. I can see more and more actuaries with general insurance qualification emerging. Actually this phenomenon also benefits the general insurance industry, by having more general insurance actuaries, the general insurance companies will be able to improve the soundness of product design and management.

Look forward to the first implementation of revised Motor Tariff premium rates on 16 January 2012.


Reference:

• Implementation of the New Motor Cover Framework (Bank Negara Malaysia's press release, 6 January 2012)