Starting 1 July 2017, the premium/takaful contribution for Motor Comprehensive and Motor Third Party Fire and Theft will be liberalised
What is being liberalised in Motor insurance and why?
Starting 1 July 2017, the premium/takaful contribution for Motor Comprehensive and Motor Third Party Fire and Theft will be liberalised. Liberalisation will drive fairer ways of pricing premium/takaful contributions based on risk profiles, which will encourage road users to be more responsible. Comparison of motor insurance premiums/takaful contributions before and after liberalisation:
|Before 1 July 2017||After 1 July 2017|
Determined by tariff rates based on model, age and engine capacity of vehicles, and discounts in the form of NCD.
Determined by individual insurance companies and takaful operators based on individual risk profile.
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Frequently Asked Questions
Bank Negara Malaysia (BNM), as the supervisory authority for all financial institutions, has the oversight on the application of tariffs. Classes of insurance that are tariff are Motor and Fire.
Typically, drivers with good driving records can enjoy a higher percentage of NCD up to 55%.
A good risk should be rewarded and a bad risk should be recognised. This means that a good driver should pay lesser premium compared to another driver who is in a class that is more likely to experience many accidents. There should also be incentives for perceived bad drivers to become better risks and be rewarded with reduction in premium.
However, premium rates for Motor Third Party product will continue to be subjected to tariff rates.
- An improvement in the quality of service and a wider range of products at competitive prices due to greater competition among insurers;
- The availability of new products with different features that will enable consumers and businesses to obtain the coverage that best meets their insurance needs.
- As safety features will be one of the factors to determine premiums, drivers will be incentivised to inculcate safe driving habits which will benefit them and the general public.
- New distribution channels such as cost efficient online channels would enable insurance protection to be purchased in a manner most convenient to consumers.
For low risk groups, premiums are expected to be lower. On the other hand, for high risk groups, premiums chargeable are expected to be higher but this can be moderated by risk reduction factors undertaken by the policyholders e.g. safer driving habits to reduce accidents, installation of car telematics or certified anti-theft devices for cars which help reduce theft.
These factors could be safety and security features of the vehicle, duration that the vehicle is on the road, geographical location of the vehicle (in areas with higher/ lower incidents of theft) and traffic offences on record. These factors will define the risk profile group of the policyholder which will determine the premium.
As different insurers and takaful operators have different ways of defining the risk profile group, the price of a motor policy would differ from one insurer to another.
Moreover, the Phased Liberalisation is a continuation of the New Motor Cover Framework. The discussion on Phased Liberalisation between the industry and BNM has taken place since 2013. Various measures have been taken at individual company level with lead times provided to allow all insurers to build internal capabilities and formulate their marketing activities based on their business models. In addition, the liberalisation of the Motor and Fire Tariffs will be implemented in a phased approach, which will allow time for industry to adjust to the new operating environment. In anticipation of adverse unsustainable pricing, the regulator has phased the liberalisation process and insurance companies will need to get approvals if they want to price aggressively. In addition, the Risk Based Capital Framework will ensure companies have adequate funds in place.