Phased Liberalisation of Motor and Fire Tariffs – Know these 7 things:

1. What it means – Phased liberalisation of motor and fire tariffs is also known as de-tariffication of motor and fire insurance. It means that the regulating body (in this case, Bank Negara Malaysia) will no longer tariff the pricing of motor and fire insurance. Insurance and Takaful companies in Malaysia will be able to determine their own methods in deciding each motor and fire insurance policy they sell.

2. Implementation dates – Phased liberalisation is carried out in two phases. Phased 1 took place on 1 July 2016 where insurance companies were allowed to introduce tariff-free insurance products to the market. Phase 2, which will be implemented on 1 July 2017, is when we will be expecting to feel the direct impact where prices of motor insurance will no longer be the same. However, Third Party cover will not be experiencing any immediate changes.

3. Why – The change is deemed necessary as cost especially for Third Party policy has become too high for the insurance and Takaful companies where the actual pay-out for claims is between RM 1.30 – RM 3.00 for every RM1.00 premium received. De-tariffication is also introduce fairer pricing where safe drivers will pay lower premium than riskier drivers will. This is not something unique to Malaysia, in fact many countries all over the world have been practising it for many years.

4. Pricing – Motor insurance premium under phased liberalisation will take into consideration the risk profile of the policyholder. Unlike the current practice where sum insured and vehicle engine size (cubic capacity) being the only factors determining the price of motor insurance. Because the price was tariffed (controlled), the premium we pay for our motor insurance has been the same (or almost the same) no matter which company we buy our policy from.

5. Premium calculation based on risk profile – Risk profile of policyholder means how likely the policyholder will be making a claim against his insurance and how big the claim amount will be. Factors that will determine one’s risk profile includes: Gender, driving experience, claims history, location of residence, occupation, vehicle type and model, use of vehicle, vehicle mileage and history of traffic offences. Under phased liberalisation, insurance companies will look at each policyholder’s risk profile to decide on the premium. Higher risk equal higher premium. Lower risk means lower premium.

6. What to expect – Aside from the obvious change in premium, expect fierce competition among the insurers. Insurers will compete in several ways to win over customers including introduction of a variety of innovative products, improve in service and professionalism and most importantly – price!

7. The role of the consumer – Consumers are mainly concern about price they pay for their premium, the service provided by the insurance companies, the policy coverage and its benefits. With the price difference that insurers will start to impose and the variety of new products they will be introducing, it is best for consumers to shop around before buying a policy. Consumers should compare products and prices offered by several companies to find the most suitable one. Call up several insurance agents to help you find what you need and do so ahead of your policy expiry date.

Here’s a video you you might find interesting.

Want to know more in depth about phased liberalisation of motor and fire tariffs? Go HERE and you will find lots more interesting information including videos.

Find out who are Malaysia’s favorite motor insurance companies as voted by consumers 2016.

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What is the Competition Act 2010?

The Competition Act was implemented on 01/01/2012. It is set to protect the Malaysian consumer from large companies that fix prices to keep the profit high.

For example, if all the bread makers decide to fix the price for bread at RM2.99, then the bread makers are not allowing competition. This is called anti-competition. This is bad for the consumer because in a free market, some bread makers may decide to sell the bread for RM 2.00, because the cost to produce the bread is only RM 1.00.

Who are the main parties?

1) Malaysian Competition Commission (MyCC) – an independent body formed in June 2011 to enforce and implement the Competition Act.

2) Bank Negara Malaysia (BNM) – the Central Bank of Malaysia.

3) Persatuan Insurans Am Malaysia (PIAM) – also known as the General Insurance Association of Malaysia (GIAM). An association which represents and promotes the interests of general insurers in Malaysia.

4) Federation of Automobile Workshop Owners’ Association of Malaysia (FAWOAM) – an association which represents and promotes the interests of workshops in Malaysia.

5) General insurance companies in Malaysia – the insurance companies who provide motor insurance cover under conventional insurance.

What actually happened?

In 2011, BNM directed PIAM and FAWOAM to come to an agreement involving motor parts discounts and labour hourly rate, as everyone was pricing it their way which resulted disputes among general insurance companies and workshops.

The terms agreed between PIAM and FAWOAM were:

• Fixed trade discount in agreed percentages for parts on Proton, Perodua, Nissan, Toyota, Honda, Naza
• Fixed rate for labour for general insurance companies’ or PIAM approved workshops at RM30/ hour.

Some workshops disagreed at being forced to provide trade discounts on parts and fixed hourly rates as this will affect their capability to provide the level of services required and will impact their profit.

The Malaysian Competition Commission viewed the agreement as a violation to the Competition Act as it indirectly forms a cartel and suppressed workshops through standardized trade discounts on spare parts and labor hourly rates. This in turn may reduce the quality of repairs to motor vehicles.

What does this mean to Malaysian drivers?

There is no change for the Malaysian drivers, because the insurance companies are paying the workshops for the repair. The fixed prices help the insurance companies make more profit from the workshops. This decision by MyCC is a big win for the workshops, because without fixed prices, they can decide their own prices.

What will happen next?

The Malaysian Competition Commission’s (MyCC) proposed fine is not final. General insurance companies are now coordinating with PIAM and BNM to seek a judicial review to defend themselves against MyCC’s claim. The fine will be a big impact to the insurance companies, especially the smaller insurance companies.

If MyCC wins, they will turn its attention to Malaysian Takaful Association (MTA) members offering motor policies.

Source:

http://www.thesundaily.my/news/2175999

http://www.bnm.gov.my/index.php?ch=en_press&pg=en_press&ac=4384&lang=en

http://www.thestar.com.my/business/business-news/2017/03/01/bank-negara-slams-myccs-decision-to-fine-piam-and-its-members/#O3WPKKgE5PLmyhPS.41

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