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.
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.
Picture Courtesy of Melvin Chia
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.
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