Industry stakeholders cautious, others laud new measures
KUALA LUMPUR: Some industry stakeholders are unsure whether the new measures to determine motor insurance premiums will work in Malaysia.
Malaysian Automotive Association (MAA) president Datuk Aishah Ahmad said MAA was still vague about the effectiveness of the measures.
“The measures didn’t work in India.
“We are still waiting for more information,” Aishah told NST Business when asked to comment on Bank Negara Malaysia’s (BNM) latest move to further liberalise the insurance sector.
“We do not see that the insurance pricing would increase any further with this move, as this system will definitely create an open market for the insurance company.
“However, BNM should further examine the measures,” she added.
Under the more liberalised environment from July 1 announced by BNM yesterday, more risk factors would be taken into account in determining motor insurance premiums.
Other than the sum insured, vehicle engine cubic capacity and age, insurers can take into account the vehicle’s safety and security features, duration on the road, geographical location and traffic offences record to determine premiums.
BNM assistant governor Jessica Chew said competition in the local insurance industry was unlikely to turn into a vicious cycle that threatened insurers’ solvency.
“I am broadly thinking that we are expecting it (the impact on insurers) will be fairly neutral in the first 12 months or so.
“We are not going to see a major impact directly on profits as there will be largely an adjustment across portfolios,” she said at a briefing on the new system.
The central bank’s insurance and takaful supervision department director Hew Ee Lu said its best guess was neutral or downward effect to insurers’ profitability.
“One is the price competition that could potentially trigger a price war.
“The other one is that to implement this, they will invest in a lot of systems or models to come up with a pricing and therefore the expense ratio might actually increase,” he explained.
Sunway University’s Business School Economics Professor Dr Yeah Kim Leng was positive on the measures.
He said there would be more choices in terms of price range, coverage and benefits for consumers.
“They can now shop around as the liberalised market will foster greater competition among the insurance providers and this is expected to lead to more innovative products, better pricing and a more dynamic and sustainable industry,” he said.
In the short term, he added, prices might rise due to inadequate premiums to cover losses in some market segments.
“In the long term, it is good for the market with more choices and differentiation whereby safe drivers will be rewarded with lower premiums.”