Insurance: New Bank Negara ruling to impact claims ratio? (10 May 2011)

Now, every cars can get covered...

RHB Research:

Bank Negara Malaysia (BNM) announced last week that effective immediately, members of the public will be able to obtain motor cover from all general insurers and their branches as well as at Pos Malaysia and its branches nationwide. All general insurers are committed to provide motor cover to all motorists including the "displaced vehicles" which generally comprise private vehicles exceeding 10 years old and motorcycles currently underwritten by the Malaysian Motor Insurance Pool (MMIP).

Obligation to provide cover with NO excessive loading

Based on this new ruling, general insurance players are obligated to provide cover to all insurance seekers, without excessive loading and cross selling of other classes of insurance to mitigate the risk. Although, general insurance players could still load the policies, albeit at a more reasonable amount and not 200-300% as previously charged by the MMIP for the so-called high-risk "displaced vehicles" or vehicles which are aged 10 years and above.

Finance Malaysia: Good to car owners, Sorry to insurers...

According to analysts, as a whole, this new ruling is negative for the industry. Although, this is good to owners of old cars, insurers is at the losing side. Insurers are facing with a probability of higher claims, coupled with a lower premiums charged. Of course, this would be underscoring the bottom line of insurance companies. According to RHB reseach, they are forecasting a higher claim ratios on insurers as follows.

RHB research: Changes in claims ratio and earnings

Short-term pain, Long-term gain

However, Finance Malaysia believes this is just a short-term disadvantages to insurers only. Do you still remember the new motor framework which will allow insurance companies starting 2012? That will allow insurance companies to increase the motor policy premiums in the long term according to the claims experience of the industry. More or less, this will balanced out the current negative implications once the gradual liberalizations begins next year.

Source: OSK and BNM

Source: OSK and BNM

Motor Insurance to cost more starting 2012?

Last year, Malaysia Automobile Association (MAA) reported a record number of cars sold. Are you one of them? If you're not in that statistic yet and planning to own a new car now, please read this post which could scare you away.

In fact, petrol prices are heading up again since 2008 with prices of RON97 reviewing monthly. Without failed, the price of RON97 is going up consecutively for the past few months. Anyway, are you driving fuel-efficiency car like me? Despite that I am pumping RON95 petrol and driving the so called "fuel-efficiency" car, I still feel the pain of pumping money.

Source: Malaysia Automobile Association

What to do?

If you don't eat, your car still have to "drink" ma. Uncertainties in Middle East is already spiking up oil prices globally. You think this is the worst for motorists like us?

By "pouring oil on fire" (to make things even worse), government plans to gradually increase motor insurance premiums from 2012 onwards under the new motor insurance framework to be prepared by Bank Negara Malaysia (BNM).

How much more?

Up by between 250% to 450%?

Bank Negara assistant governor citing it totally incorrect. He said the premiums increases would be gradual, and spread over 4 years. See chart below for illustration made. Please take note that the increase will depends on vehicle's age and motorist's history of claims.

www.financemalaysia.blogspot.com

Why we need the new framework?

1. This is the 1st revision since 1978
2. Government plan to do away with tariffs for motor insurance business in 2016
3. Insurance companies are crying over high claim costs which make their business unprofitable

On the flip side, the new scheme would see improvements in the overall delivery system including addressing issues relating to affordability and accessibility to Malaysian Motor Insurance Pool cover. Hence, it could significantly reduce claims settlement period to between 6 - 18 months from more than a year currently.

According to Bank Negara, the motor insurance business incurred an estimated annual loss of RM650 million as at 2009/2010, which means the motor insurance business is unsustainable if we don't act now.

Related posts:

1. Proton loves Perodua to avoid extinction?
2. Fraudulent Insurance Claims and YOU

New Deposit Insurance Limit At RM250,000

Effectively today (31st December 2010), the deposit insurance limit will be increased to RM250,000 per depositor per bank, announced Perbadanan Insurans Deposit Malaysia (PIDM).

Below is the summary of the said announcement:-

• The new PIDM Bill 2010 has been passed in Parliament.
• The limit of RM250,000 will protect 99% of retail depositors in full.
• Under the new Bill, foreign currency depositors will now enjoy deposit insurance protection.
• The enhanced financial consumer protection package also includes the expansion of PIDM's mandate to include the administration of the Takaful and Insurance Benefits Protection System (TIPS).
• Licensed insurance companies and registered Takaful operators will automatically become member institutions of PIDM.
• PIDM was given the powers to intervene in or resolve troubled insurer members and ensure prompt payments to claimants.

PIDM is Malaysia Government agency, mandated by Parliament, to protect depositors against the loss of their funds in the event of a member bank failure. Member banks comprise all commercial and Islamic banks, including locally incorporated foreign banks, in Malaysia.

Source: www.pidm.gov.my

The Importance of Insurance to the Economy

Still remember Obama’s health care bill which was passed recently?

Why Obama want every citizen of US to have a chance to insured themselves?

Because Obama knows the reasons below…

In reality, insurance cannot protect property or lives, but it can protect those insured against the adverse financial consequences of losing property and lives.

Likewise, an insured person cannot be protected against dying or disease, but the dependent is protected financially if such events occur unexpectedly. In any of such similar cases, the insured would be in economic dire straits if not for the financial protection conferred by insurance.

In short, insurance as an economic device provides the insured with financial certainty in an environment that is filled with the possibility of losses. In providing such benefits, insurance brings peace of mind to people – and to society at large.

Another benefit of insurance is its ability to provide for more optimal use of economic resources. Without insurance, individuals and businesses will have to create and maintain a relatively large contingent fund to meet the risks they have to assume.

To ensure the contingent fund is safe, it will be necessary to invest them in low yielding but secured investment like bank deposits. Effectively, this would deny the individual or business the opportunity to invest these funds more productively.

Imagine if everyone keeping their money in bank accounts?

Imagine if everyone spending lesser?

Imagine if everyone investing lesser?

In fact, our economy needs more and more money flowing, so that to create abundance of opportunities for businesses.

With insurance, the risk of loss is minimized or eliminated through transference or risks from the insured to insurance company. The contingent fund against such risks could also be created immediately.