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The battle of the premium rebate continues, with Perwakim holding a peaceful picket last Tuesday…

Via InsuranceOnline.my…

(Business Times) PERWAKIM, an association of general insurance agents in Malaysia, has submitted a memorandum to Bank Negara protesting the central bank’s proposal to give rebates on premiums for consumers that renew their motor insurance directly with insurance firms.

They claim that the move, which takes effect from today, would adversely affect consumers, agents and the insurance industry in general.

Perwakim president Liza Lau said a copy of the memorandum was also handed to the office of Prime Minister Datuk Seri Najib Tun Razak, the Ministry of Finance and Ministry of Human Resources.

Lau led more than 50 agents in a peaceful picket in front of Bank Negara yesterday. The crowd dispersed after about two hours.

She said there are a total of 50,000 insurance agents nationwide of which 40 per cent are full-time agents.

Insurance agents earn a 10 per cent commission from the insurance companies.

If you’ve missed the previous rounds, here’s a summary of what happened so far:

1) BNM has approved General Insurance companies in Malaysia to give premium rebates to direct customers.

2) Direct customers would meant customers who approach the General Insurers directly (walk-in, through the internet, direct mailing and the telemarketing channel). In short, any method that does not go through sales agents or intermediaries.

3) The beef of the issue mainly lies with the motor insurance rebate, as this was ‘once’ considered the iron rice bowl for most agents. What happened was after the premium rebate was approved, customers who renew their motor insurance directly will receive 5% premium rebate in the first year of implementation and 10% thereafter.

4) For other types of general insurance products, the General Insurers are given flexibility by BNM in the rate of premium rebates.

If you haven’t read about my previous take on the issue, you can head over here: Duit Kopi.

Today, I would like to re-look into this issue from another perspective.

These general insurance agents did not get all worked up for nothing. There’s some element of betrayal here. Yes, for some consumers, these agents might not have deserved the 10% extra premium, but I would say that for any agents serious in the general insurance business, most of them are providing much better service from say, a typical General Insurer’s front-line customer service consultants or helpline operators. Imagine trying to get an answer from these front-line customer service consultants on the market value or to get a quotation for your vehicle. And compare this with a general insurance agent who is not under the direct payroll of the General Insurer. I can safely bet that the latter will be relatively more responsive and efficient. Most of everyone I know have had bad experience with 1800 customer service numbers.

Another aspect that was overlooked by the authority on the implementation of this premium rebate is the compensation for loss of income. Sure, it’s arguable and almost impossible to determine the value of these general insurance agents in soliciting businesses for the General Insurers, but what about the existing customer base that these hardworking general insurance agents have built for these General Insurers. How is the new premium rebate compensating for the historical loyalty of these agents? Yes, you can argue again that if the agent’s service is good, the customers are most likely going to stick around, but who’s to say otherwise? Malaysians being Malaysians, it’s very common to see customers throwing out loyalty out the window the moment they see the word ‘DISCOUNT’. In Malaysia, it’s easily one of the most emotional phrase after ‘FREE’. So, what is the authority’s policy on the compensation of businesses lost incurred directly on the once loyal sales force?

The next issue is about ethical and fairness. How is the agent able to compete fairly with the General Insurer? Imagine a supplier marketing their product directly to the consumers. What’s going to happen to the retailer? Okie, that might not be a good analogy, since you can always debate that the retailer who don’t add value should never have existed in the first place. But remember again, these retailers has been marketing the supplier’s product since the beginning of time. And suddenly the supplier just decided to cut into the scene, without any form of compensation and even offering rebates that will wipe off the entire retailer network. I can smell a commercial lawsuit coming up. The least these General Insurers could do is to offer the same pricing, without premium rebate and play the game like an ethical sportsman.

That’s my piece of mind. I think the General Insurers are taking these general insurance agents for a ride by providing double pricing and standards on their products, and BNM being the respected Regulatory Body should have taken more time before implementing this policy, ensuring it’s a win-win situation.

Heh, yours truly clocked 1hr 26min 24secs.

Not too bad, considering this my first attempt. According to the announcer that Sunday morning, there were about 5,100 runners in the Men and Women 10km category.

For comparison, the number one men runner in this category was a fellow Malaysian Mr Ruburn Kummar, who clocked 36min 26.43secs, while the number one women runner was an Australian lady, a Miss Georgina Beech, clocking 44min 11.18secs.

If you’ve ran last Sunday, you can check your personal time here: KL-Marathon Result Search.

If you’ve been following my tweets lately, you might have noticed that I’ve been practicing in Bukit Kiara for the upcoming KL Marathon. Bukit Kiara is in fact quite a popular hangout place for runners and mountain bikers. It’s one of the very few green lungs left in Klang Valley, without having to drive too far out.

If you have been to the Bukit Kiara’s jog trail, you would realize that the track is rather challenging. The uphill sections can be quite a tough stretch and so steep that you might have to ‘walk it out’ if you haven’t been practicing regularly.

So, each time I encounter the uphill stretches, I would be forced to take smaller paces and gear down to a slower speed to ‘conquer’ the slopes. Just a few days back, I tried another technique which allows me to maintain my speed and pace- by running zig-zag up the slope. Although this technique lengthen the distance needed to cover the slope, it somehow allowed me to better pace myself and reduce the strain on the leg muscles. And it’s also at that point that I realize how similar this technique is to the way we approach the goals we set in other aspects of our lives.

When we’ve decided on a challenging goal that don’t seem so achievable, we can in fact tackle it by going around the obstacle, cutting it down to smaller goals and solving these smaller goals step by step. This not only help us to take positive action towards our goal it also help us to build the momentum to tackle the bigger challenges later on. ‘Going around’ can be easily mistaken as ’sidetracking’ the goal, as the latter would mean the actions we take brings us farther away from our goals, a distraction of sort.

So, the next time you’re faced with an insurmountable obstacle, do not be paralyzed by its intimidating pressure. By using some analytical skills, experience and a little imagination to break down the obstacle, you might be surprised at what seems to be a cul de sac could simply be turned into an opportunity.

To quote Henry Ford, “Obstacles are those frightful things you see when you take your eyes off your goal.”

All effective scams start this way:

1) Enticement
Sweetening & softening process to reduce your defense against them.

2) Enticement Booster 1
Once your guard is down, they will drill their messages across and also giving you more freebies and hopeful promises and tell you more about their future plans.

3) Enticement Booster 2
Once you have no more issues with the Company, this is the next jab they will introduce into your belief system. They will start to build your trust to a level where you will not question any of their motives anymore. This is somewhat like rearing the chicken to the maximum size just right before the slaughter.

4) Entrapment
This is when they will ask you to part with something very precious to you- your hard-earned money, in exchange with something that they tell you is really worthy of your money. Of course, after so many boosters, you can hardly tell facts from myths. And snap! You’re few thousands ringgit poorer, and in possession of some worthless, unmarketable products/services.

5) Solution
Now, they’re not finished with you yet. At your most emotional moment (imagine losing all your savings overnight), they tell you to look on the ‘bright side’ of things. Get your friends and families in the fray.

And if their boosters still works, you probably had an ‘Eureka’ moment there. And their victimisation continues until it reaches a point where the top guys decided the market is saturated with victims like you and your friends, and move on to a new strategy.

Just stay alert, and always keep these words in mind: ‘There’s no free lunch.’

Recently, there has been quite a racket over the decisions made by general insurance companies in Malaysia. Some insurers have recently decided that it’s time they cut out the middleman, and pass the savings down to the consumers directly.

Individuals who purchase general insurance covers directly from insurance companies will be eligible to receive premium rebates, effective July 1, 2009, said Bank Negara. The quantum of the rebates will depend on the type of insurance covers purchased, it said.

The central bank said on June 19 that for motor insurance, individuals will receive 5% premium rebate in the first year of implementation and 10% thereafter. For others, including businesses, insurance companies would have the flexibility of providing the rebates. The direct purchase includes walk-in, through the Internet, direct mailing and the telemarketing channel.

Source: The Edge Daily, 19th June 2009

And middleman being who they are, predictably made a huge furor over the issue.

PROTON Dealers Association Malaysia (Peda) said the direct rebate for motor insurance will “destroy” the automotive eco-system, particularly the dealers network.

The association warned insurance companies that it will call for a boycott if the proposal is implemented.

The proposal came from the General Insurance Association of Malaysia (Piam) and was approved by Bank Negara Malaysia via a circular dated April 17.

My take? If you are not providing any value-added services, then you shouldn’t expect to stay in the food chain. Period.

Citing unemployment and a weakening automative eco-system as the main reasons why these dealers should continue to receive commission revenue sounds totally irrelevant to the paying customers. There’s a term for this: ‘leeching’. PEDA even mentioned about boycotting the proposal. In my opinion, this is a very childish reaction to the situation. Maybe they haven’t read about Seth Godin’s take on middleman.

The Government should intervene and defer the implementation of direct rebates for motor insurance as this will increase unemployment in the country.

State Unity, Human Resources, Science, Technology and Innovation Committee chairman M. Asojan said the direct rebates would affect the livelihood of thousands of insurance agents nationwide.

“The Government is working hard to ensure that people have jobs during the economic crisis and the last thing we need is a mass lay-off in the insurance sector,” he told The Star here.

Asojan, a former insurance agent, said he understood the plight of the thousands of agents nationwide.

He said the agents provided an array of services including helping with claim forms, advising clients on what to do in road accidents, providing contacts on the nearest workshops and checking on the status of claims.

“Are insurance companies ready with more counters to handle the influx of motorist from July 1?” he aked.

Asojan pointed out that it was the insurance companies’ responsibility to assist the Government in ensuring people had jobs, especially when the Government was trying to kick-start the economy with the two stimulus plans.

“Was there a study done before the General Insurance Association of Malaysia and Bank Negara decided to implement the move?

“What about the consequences of this move on the thousands of agents who have helped the industry?” he said, adding that it should be implemented after taking into account the views of all the parties.

Source: Ministry of Human Resource, 3rd June 2009

For general insurance agents who rely heavily on car insurance premium businesses as part of their revenue channel, this is sure a good time to re-think your strategies. If you think about it, with rising claims and a revenue share of only 10% with the General Insurer, car insurance is probably not one of the best product to focus on in the near term. Maybe one can start looking through your existing car insurance customers and cross sell other relevant products such as fire and burglary insurance, personal accident plans or even travel insurance plans. Yes, although these products are not ‘compulsory’, but the margin is much higher. It’s definitely better than complaining about how unfair the world is.

While we’re on the car insurance issue, recent trend in the industry has it that several general insurers are shunning away from 3rd party car insurance coverage. A third party car insurance coverage basically means you are only protecting your vehicle against claims on others people damages. In a 3rd Party accident, if you are at fault, your victim will be compensated by your Insurer, while you are to fork out your own money on your own repairs. Unless you are very confident with your driving skills, it’s always better to cover your vehicle with ‘Comprehensive Cover’. The reason why some people still opt to cover their vehicle with 3rd Party coverage is mainly because their vehicles are almost as valuable as scrap metal (for instance, there’s not much reason for you to cover a 20 year old Proton Saga with a Comprehensive Coverage). Yes, the difference between 3rd Party Cover and Comprehensive Cover is quite significant. Most companies, in order to save cost, especially during such trying economic times, would prefer to take the risk and save up the extra premium money to provide better cash flow for their businesses.

On the same issue, a few general insurers are also implementing premium loadings on certain risk factors, for example, drivers aged 29 years old and below will be required to pay 15% extra on premium, which I find it a very unfair use of statistics and an obvious desperate act by insurers to ensure profitability.

Bank Negara is studying the possibility of reviewing the “tariff-based’ insurance system for motor vehicles that had been effective since 1978 and replace it with a “risk-based” system, said Deputy Finance Minister Datuk Dr Awang Adek Hussein. He said on June 16 the proposal was to ensure a level playing field in the motor vehicle insurance industry, it should have a more sustainable system where insurance premiums were based on risk instead of being controlled by tariffs, adding that Malaysia was one of the few countries that adopted the “tariff-based” system.

He also said while the tariff-based insurance system recorded RM4.5 billion gross premiums for motor vehicles last year, the profits by insurers following underwriting performance were minimal as Malaysia had a high loss ratio of 80.9% as compared with Thailand (60%), China (68%) and Indonesia (70%). “This means for every RM1, some 81 sen goes to claims. This has caused many insurance players to be less able,” Awang told the Dewan Rakyat yesterday when replying a supplementary question by Chong Chieng Jen (Bandar Kuching – DAP) Chong had wanted to know whether the central bank had taken any steps to act on insurers that compelled old motor vehicles owners to purchase personal accident policy besides the “first party” or “third party” insurance policy.

Source: The Edge, 16th June 2009

It also somehow escape these authorities that if there are proper law enforcements on certain institutions, the motor insurance business need not be in such a sorry state. Here’s a few examples I can think of which could improve the situation:

1) Ensuring all drivers are fit to drive. This is a no-brainer. Yes, you might think that everyone who ‘graduated’ from the JPJ driving schools would automatically be able to handle the steering wheels. If you have been on Malaysia roads long enough, you should know by now it’s not the case. If JPJ would stop distributing ‘lesen kopi’ (driving license obtained through bribing the driving instructor), I think we could really see a huge drop in the number of claims almost immediately.

2) Ensuring all road offenses are legally penalized and with some sort of a merit-based system. Right now, almost all Malaysian drivers are able to escape from an official summon by utilizing ‘duit kopi’ (fees paid under table to the authorities). A merit-based system would also ensure offenders are kept out of the road. If there’s proper law enforcement on the road, we should see another drastic drop in the number of claims.

3) On the commercial side, law enforcement should be beefed up to ensure non-roadworthy vehicles are taken out of the road. If you travel along the North-South PLUS highway often, the sight of over-turned and overloaded trucks is so common that they almost formed part of the scenery. Apparently, our Road ransport Department is not aware about how these truck companies bypass their routine roadworthy checks.

4) Giving more perks to safe drivers. The maximum Non-Claim Discount (NCD) is now set at 55%, which I think is not enough to encourage Malaysians to be more courteous on the road. I think every driver would welcome a higher rate of NCD, at least 65% and also some other benefits like free towing services or a minimal amount of Personal Accident insurance.

5) Authorities should be held liable also for lousy road conditions and bad road sign placements. If you have drived in the Klang Valley, it’s easy to understand how badly placed most of the road signs are, and it’s also becoming almost impossible to distinguish between an official road sign and a commercial billboard. Another failure in corporate governance. A friend who recently ran over a pot hole with his brand new Suzuki Swift damaged his entire gearbox, which cost him RM20,000 for a full replacement!

The authorities need to go down to the root of the problems. Pooling every Malaysian drivers into the equation is definitely not going to improve things.

There’s just too much caffeine in the system.

Time, like any other resources we have, becomes precious when it’s scarce. It’s even more so when you are ‘forced’ to allocate that resources into something that you are not so willing to allocate it for…for example, studying for exam.

I find it hardest to concentrate when studying for exams, as the mind starts running wild with the ‘next big idea’. And now, I’m sneaking out of my last minute textbook revisions posting on this blog.

Anyway, 2 papers in the next 2 days shouldn’t be that tough. I better shut off the modem…

An increment of 15% in outstanding balances (comparing January-April 2009 and September-December 2008. The main reason quoted in the article was ‘global economic slowdown’.

I think another reason could be the fact that it’s almost becoming a no-brainer to get a credit card these days, and on top of that, the limits given to credit card holders doesn’t really commensurate with their level of income (which directly affects their repayment ability). It’s quite common for an individual who earns RM2,500 a month to be allowed RM15,000 limit of ’swiping facility’, which is obviously very tempting.

(Business Times) Total outstanding balances due from cardholders in the first four months of 2009 for payments in the near term rose as more cardholders face difficulties in servicing their credit card payments on time in an environment of a global economic slowdown.

According to Bank Negara Malaysia statistics, total outstanding balances for the period of three to six months due from cardholders rose 15% in the first four months of 2009 to RM2.12 billion from RM1.84 billion in the period of September to December of 2008.

Compared with the corresponding period a year earlier, the outstanding balances were also 15% higher.

For credit card outstanding balances owing to banks for less than three months, the amount rose to 6.3% to RM8.18 billion in the period of January to April 2009 from RM7.69 billion in the last four months of 2008. The outstanding balances were up 7.7% against RM7.59 billion a year earlier.

Outstanding balances due from cardholders for more than six months rose 13.3% to RM213.3 million in the first four months of 2009, compared with RM188.2 million for the period of September to December 2008.

Nevertheless, year-on-year, the amount of outstanding balances owed by credit cardholders fell 11% from RM239.7 million.

AmResearch deputy research head Fiona Leong said the rising outstanding balances due from credit cardholders in the near term did not necessarily mean most of them would turn into non-performing loans (NPLs).

She said currently, the percentage of NPLs against outstanding credit balances stood at 2.6%, which was still small.

“No doubt, cardholders are taking more time to settle their credit card bills, especially under such economic environment. But, not all of this amount will turn into NPLs, as the amount owing to banks would still be considered as performing loans as long as cardholders are able to service the minimum amount each month, such as the interests of the outstanding balances,” she told The Edge Financial Daily here last Friday.

She added that as the number of retrenchments appeared to have eased, the outlook on NPLs would no longer be on a deterioration mode. “Hence, we should not see NPLs rising so much after all,” she said.

Industry observers said banks had already anticipated that credit cardholders might face more difficulties in servicing their debt since last year, as unemployment soared while industrial output dipped.

Recently, US bank JPMorgan Chase chief executive Jamie Damon warned that losses on the credit card portfolio of Washington Mutual, the troubled bank that JPMorgan acquired last year, could climb as high as 24% of the total by this year-end.

However, an industry observer said local banks were not expected to face high credit card losses, as the country was not impacted in the same manner as the US, while local banks’ net NPL ratio had held steadily at 2.2% currently.

To help credit card holders better manage their minimum repayment to banks, the Association of Banks in Malaysia (ABM) had revised downwards interest rates of local credit card charges in February.

If you’ve always been curious about the implications of dying intestate (that’s dying without a Will), you should attend this talk by Mr Inderjit Singh. Admission is FREE but the seats are limited. The talk organiser also told me that they will be handing out free copies of Smart Investors (worth RM10.00) to participants during the talk.

Some interesting facts on marriages in Malaysia, in case you’re not sure if the marriage you’re planning would withstand the scrutiny of our legal system.

PROHIBITED MARRIGES

One cannot marry his or her

(a) grandparent, parent, child or grandchild, sister or brother, grand aunt or grand uncle, aunt or uncle, niece or nephew, grand niece or grand nephew.

(b) grandparent or parent, child or grandchild of his or her spouse or former spouse.

(c) the former spouse of his or her grandparent or parent, child or grandchild.

(d) No person shall marry a person whom he or she has adopted or by whom he or she has been adopted.

Note: A Hindu may marry his sister’s daughter (niece) or her mother’s brother (uncle).

For more ‘rules and regulations’ visit The Malaysian Bar on Marriage…