Will Prices of Motor Insurance Go Up after Liberalisation?

Before 1 July last year, I was paying the same amount of motor insurance premium as the same 'irresponsible driver.'

However, this was because motor insurance in Malaysia was tariffed before 1 July last. Motor insurers were not allowed to fix their own prices for motor insurance products as prices were set by Bank Negara Malaysia (BNM). It is different from getting a life or medical insurance policy. Let me explain:

Years ago, I bought myself a life insurance policy. My premium was determined by several factors, such as my age, gender, health condition and lifestyle habits. In my case, I was in good health when I purchased the policy and paid the standard rate for it.

It would not be fair to healthy people if smokers, drinkers, diabetic patients or people with poor health conditions paid the same amount of life insurance premiums. This is because they are more likely to claim insurers as compared with other customers who are healthier.

NEGATIVE IMPACTS OF MOTOR INSURANCE TARIFFS

In my opinion, a tariff on motor insurance is similar to having smokers pay the same insurance premium as nonsmokers. That, I believe, is not fair. It is a system skewed in favour of irresponsible drivers, as there are no incentives to reward exemplary driving ethics and behaviour in our country.

IT’S TIME TO LIBERALISE MOTOR INSURANCE

As I write, the Malaysian government has set a target to reduce road accident deaths by 50 per cent by 2020. One of the efforts being taken is to liberalise local motor insurance premiums, which begun on 1 July last year.

Today, motor insurers are allowed to offer their products at rates varying not more than 10 per cent (or +/- 10 per cent) from the tariffed premium set by BNM.

From next year onwards, BNM would evaluate the progress of this liberalisation and work towards a full liberalisation if Malaysians are ready for it. As a result, it is up to motor insurers to set prices for their insurance products.

So, does this mean Higher Motor Insurance Expenses?

Not necessarily. Firstly, it is crucial for us to understand the possible factors taken into consideration when fixing prices for motor insurance products. These factors include:

1. DRIVERS’ PROFILE

It is an assessment of the risk profile of a driver. It includes a detailed consideration of the driver’s age, gender, years of driving experiences and the drivers’ behaviour, where part of the assessment may include checking the drivers’ motor insurance claims record. If you are a low-risk driver with good driving records, you may enjoy relatively lower premiums compared with other drivers who are of higher risk.

2. VEHICLE’S PROFILE

It is an assessment of the risk profile of a vehicle that takes into account the vehicle’s model, age, maintenance records and installation of telematics or safety features and devices. In general, a car which is in good condition would enjoy lower rates as compared with an older vehicle which is not wellmaintained.

Hence, if you have been adopting an exemplary driving behaviour and have kept your vehicle in good condition, you are in a position to enjoy lower rates for your motor insurance premiums.

Also, let us not forget about the maximum No Claim Discount (NCD) of up to 55 per cent which is applicable if we maintain a decent driving record.

Secondly, I believe, the liberalisation of motor insurance premium is beneficial to consumers as insurers would compete for consumers’ dollars by:

1. Offering greater choices of motor insurance products that are targeted and tailored to the needs of consumers.

2. Improving customers’ satisfaction by delivering higher standards of customer services, including greater professionalism across agents and superior after-sales services.

3. Enhance operating efficiencies to reduce cost, which in turn, allows motor insurers to offer competitive prices for its insurance products. However, with that said, it is also possible for motor insurance premiums to go up after liberalisation.

Let me explain. If all, Malaysian drivers choose to drive recklessly and fail to maintain our vehicles in good condition, we are putting ourselves at higher risk of continuous growth in road accidents and road deaths.

This will lead to a rise in motor insurance claims. As a result, motor insurers would adjust their prices upwards to compensate for the surge in claim expenses.

DRIVE SAFE. SAVE MONEY. SAVE LIVES.

Monetary benefits that could be derived from safe driving are minuscule in comparison to the number of lives lost that could have been prevented if we do our part as a responsible driver.

If you are reading this, I would like to invite you to drop a comment on ‘One Simple Thing that You are Doing Today to Drive Safely and Make Malaysia a More Drivers-Friendly Nation’.

I WANT THE BEST DEAL

Today, we have more than 20 general insurers and takaful operators in Malaysia. So, where do we start to find ourselves suitable motor insurance/ takaful coverage products at their best prices from the best companies?