Phased Liberalisation – An Official Observation by BNM

At the end of the first month of its implementation, BNM has released information concerning trends and changes observed. Below are the findings based on the pricing models of 11 out of the 26 insurers sampled by BNM:

• Both premium increases and decreases within a range of +/-10% were observed across all risk pools. This suggests insurers are appropriately differentiating between lower and higher risks consistent with more equitable pricing.
• A reasonable dispersion of premium adjustments that were less than +10% was observed, suggestive of more refined pricing models by some insurers.
• Premiums generally decline with age, reflecting higher risks associated with younger and less experienced drivers, in particular below the age of 25 years. Some policyholders within the age band of 40 and 50 years old may experience marginally higher premiums, which is partly attributed to the use of their vehicles by young adult children of driving age.
• Downward adjustments in premiums were more prevalent for newer cars compared to older cars.
• No significant differences were observed across vehicle makes and models, which may indicate a more cautious approach taken by insurers before fully reflecting risk factors in price adjustments. In the initial phase of liberalisation, this is likely to tamper the effects of premium adjustments across risk groups. An exception, however, was observed for high theft-prone vehicles, which are likely to attract higher premiums.
• Higher premiums were observed for vehicles in West Malaysia than those in Sabah and Sarawak. This is mainly due to differences in risk levels and risk exposure arising from traffic density and road conditions.

(Source: Bank Negara Malaysia)

Specific risk factors

However, according to BNM, these findings do not take into account the specific individual risk factors that insurance and Takaful companies may apply in considering premiums for individual policies. These factors include:

• How frequent the vehicle is used
• For instance, a vehicle belonging to an airline pilot who is away most of the time is perceived to carry a lower risk as it is seldom in use
• Security features installed in the vehicle
• A vehicle with additional safety features installed for extra precautions and safety has a lower risk of theft than those that lack such features

Insurance companies and Takaful operators can use these factors to adjust the premiums either higher or lower than that indicted by their pricing models.

To understand more about the phased liberalisation of motor insurance and how it rewards good risk management, please read this article.