Business

Thursday January 19, 2012

Insurers: Rates revision timely

By DALJIT DHESI
daljit@thestar.com.my


KUALA LUMPUR: The recent revision in motor tariff premium rates, effective since Monday, will not significantly boost motor insurers' premium income or see more motor insurance being underwritten.

General Insurance Association of Malaysia (PIAM) executive director Lim Chia Fook said since the adjustment to the premium was in small amounts and to be spread over several years, there was unlikely to be any major impact on the premium income of the overall motor portfolio of insurers.

He added that this would not be adequate to overcome the current high loss ratios in the motor third party bodily injury claims sector. “The motor tariff has not been revised for more than 30 years. During this time, the patterns and trends in vehicle usage and ownership and accident rates and insurance claims have changed significantly.

“The new Motor Cover Framework approach of gradual price adjustments over four years coupled with the insurance industry and other stakeholders enhancing efficiency in the claims settlement process will undoubtedly improve the operational environment for motor insurance generally,” Lim said in an interview.

Ernst & Young Malaysia partner (Assurance) Brandon Bruce Sta Maria added he did not think that the rate increase would result in insurers changing their risk appetites towards motor insurance business or writing more motor insurance business and even to the extent of taking back the unprofitable businesses that they had previously rejected.

A number of insurers had gone through some very difficult and painful times over the last few years just to balance out and risk manage their motor business portfolio to meet the minimum capital requirements, he said.

However, Bruce said if total gross premiums written were to be compared with all other things held constant, 2012 premiums would show an increase compared with 2011.

“Revenue growth is not a very relevant gauge of performance for a general insurer. An insurer could have significant growth in gross premiums written but if the quality of underwriting is compromised and reinsurance programmes are not properly managed, it could suffer losses from bad claims experiences,” hesaid.

Meanwhile, Allianz General Insurance Company (M) Bhd CEO Zakri Khir felt the revision was timely, adding that a gradual price adjustment was a good start that would be a “win-win” situation for both the insurers and vehicle owners.

Malaysia has 19 million registered vehicles. Under the revised premium rates, for third-party cover, motorcycles of 100cc would see a premium increase of between RM1 and RM3.50 per year over the next four years. For a private car of 1,400cc, the premium adjustment would be in the range of RM6 to RM34 per year over the next four years.

The premium adjustment for commercial vehicles such as outstation taxis and buses would see only a minimal impact of less than 10 sen per passenger per trip.

Tariff adjustments aside, the element of loading would still apply based on the risk profile and age of the vehicles, but the maximum rate of loading would remain unchanged at 150%.

The revision in motor tariff premium rates forms part of the New Motor Cover Framework aimed at addressing the structural issues within the motor insurance sector to ensure continuous and sustainable motor protection to users. It would be the first to be undertaken after more than 30 years of non-revision, despite the cost pressure on the motor insurance industry from rising accident rates, and claim incidences.

Bank Negara was also working on a review of legal fees in bodily injury cases, measures to incentivise early claims notification and leverage on hospital counters to facilitate claims notification as well as the development of guidelines on long-term nursing care.

These initiatives are targeted for completion by June.

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