Flexible premiums for motor insurance come July 1

KUALA LUMPUR: Malaysians will have more choices in terms of motor insurance products come July 1, as Bank Negara Malaysia (BNM) introduces flexible pricing for motor comprehensive and motor third-party fire and theft insurance products.

Aimed at liberalising motor insurance tariffs, the move will enable individual insurers and takaful operators to determine premium rates for motor comprehensive and motor third-party fire and theft products.

However, the premium for motor third party products will continue to be determined by tariffs.

BNM assistant governor Jessica Chew said the premium rates would be determined by various factors including safety and security features of the vehicle, duration of the vehicle on the road, the individuals driving experience and traffic offences on record and geographical location of the vehicle.

This is in addition to the usual factors considered such as sum insured, cubic capacity of the vehicle engine, age of vehicle and age of driver.

She said this would result in new and differentiated products tailored to consumer needs and encourages fairer pricing, greater innovation and sustainable protection for consumers.

“The reality is that the premium collected and the claims that had been made, particularly involving third-party bodily injury has a big disparity. On average, for every RM1 collected, the claims that are made involving third-party bodily injury is RM1.30 to RM3,” she told reporters at a briefing last Friday.

She said with the liberalisation, the same individual would be assessed differently by different insurers, which is in contrast to the current premium calculation that is based on the sum insured and model of the vehicle, plus limited premium loading based on the driver’s age and accident record, minus the no claim discount of up to 55%.

Moving forward, premium rates would be more competitive, depending on how the insurer slices the risk profiles and how efficient they are at managing claims costs, among other factors, and Malaysians should shop around for the coverage and rates that suit them best.

According to Chew, the liberalisation would gradually move the tariff towards more equitable pricing, which would consider broader risk factors, and reduce cross-subsidisation across business classes and risk groups.

It would also spur innovation as insurers would have greater flexibility in product offerings, while also improving service quality due to competition.

The liberalisation would also incentivise good risk management and encourage safe driving behaviour among consumers, as these factors would also affect the premium rates offered.

Although insurers currently do not have access to data from the Road Transport Department or the Royal Malaysia Police, Chew did not discount the possibility of providing such access in the future if the need arises.

BNM director of insurance supervision department Hew Ee Lu said the liberalisation, which would result in stiffer competition, would have a neutral or negative effect on the profitability of insurers due to the pressure on premium rates.

“From the insurer’s perspective, our guess is neutral or downwards (impact), due to the competition that may result in a price war scenario. In order to implement these differentiated pricing, they would have to invest in a lot of systems, therefore their expense could be higher,” he said.

However, Chew said the competition is unlikely to drive insurers to insolvency due to the risk-based capital put in place by BNM, which would strengthen insurers’ risk management.

“If insurers are being too competitive and take too much risk, it will show up in their balance sheet and they would be required to put in capital that commensurate with the additional risk,” she said.

Insurers are also required to file their products with BNM prior to offering them to the market, which would enable BNM to review the fairness of the product’s coverage and premium to ensure gradual adjustment.

To date, five to 10 insurers have filed their proposals for new products in line with the liberalisation.

Chew said the NCD structure would remain unchanged and continue to be transferable from one insurer to another, and consumers would still be entitled to the NCD which they are eligible for.

They can also continue to purchase additional products to enhance their insurance protection after July 1.

The first phase of the liberalisation was introduced on July 1 last year, when insurers and takaful operators were given the flexibility to offer new motor products and add-on covers that were not defined under the existing tariff.