Insurance and takaful companies see higher profit

Free-pricing mechanism of motor insurance expected to lift earnings

PETALING JAYA: Insurers and takaful companies, whose bottom lines have been tapering, are set to see an improvement in their earnings following the implementation of the free-pricing mechanism of motor insurance on July 1, thanks to technological initiatives.

Analysts told StarBiz that the various digital initiatives such as telematics in the general insurance space will reduce operational costs and the claims ratio and improve earnings going forward.

The free-pricing mechanism under the second phase of the motor insurance detariffication was fully implemented on July 1.

The only exception is the approval required for a 10% price deviation.

Analysts concurred that the move would promote innovation and competition, which would see more tie-ups with telco providers and other technology players.

These initiatives, they said, would see better margins among motor insurers, which currently make up the bulk of the general insurance market.

Motor insurance currently comprised about 46% of the general insurance market, which is a majority segment in the RM20bil industry.

MIDF Research firmly believes that there will be a pick-up in earnings growth follow- ing the detariffication.

“At this juncture, the earnings of insurance and takaful companies are still stable. Despite the positive industry growth over the years, we noted that it is tapering.

“However, we are firm in our belief that there will be a pick-up in growth following detarriffication.

“Considering that motor insurance will remain as the dominant class of business underwritten, we foresee liberalisation as an impetus that will generate significant impact on the overall insurance industry.

“This is premised on the fact that insurers and takaful operators will ramp up its efforts in retaining existing customers and concurrently acquiring new ones, as evidenced by the new initiatives being planned out. This will ensure sustainability in growth for the foreseeable future.”

The research house said some of the potential tie-ups have been non-conventional, with insurers adopting a more inventive strategy to expand and protect their market share.

Tie-ups between telco providers and insurance players have emerged on a notable scale, taking advantage of any technological synergy, it noted.

For example, Tune Protect Group (TIH) has started a partnership with Digi to develop the implementation of telematics in vehicles.

“We view that this collaboration will ena- ble panel insurers such as Tune Protect gaining access to driver analytics through an advance platform.

“This will not only make its data collection more reliable, with real-time driver data collection, but the platform will also provide competitive advantage to the company as it will enhance its capability to provide better pricing.

“As such, we believe that its early move to telematics technology is well-timed, giving it the first mover’s advantage.

“Notably, we understand that most insurance and takaful providers have started to embrace telematics and are currently exploring the technology given its disruptive nature,” MIDF said.

As of this writing, it noted that Pixelated Sdn Bhd’s Katsana had just signed memoranda of understanding with several insurance and takaful companies such as Allianz Malaysia, Etiqa Insurance and Etiqa Takaful to develop the use of this technology via usage-based insurance.

The use of telematics will encourage safer driving habits, while reducing insurance claims loss ratios and risks for insurers.

In regard to the claims loss ratio, the research house expects a downtrend due to the ability to track and locate lost cars using telematics technology.

However, for now this technology is largely used to provide discounts as a reward to motorists with good driving behaviour.