Liberalisation FAQ

Learn more about the liberalisation of premium / takaful contribution for Motor Comprehensive and Motor Third Party Fire and Theft
Starting 1 July 2017, the premium / takaful contribution for Motor Comprehensive and Motor Third Party Fire and Theft will be liberalised.
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:

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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.

Insurance companies will now be able to create new and innovative products with additional value to meet the varying needs of different customers.

Premium / takaful contributions will be priced fairly as it will now be based on individual risk profile. Examples of factors used in other countries for pricing are age of driver, age of vehicle, gender, driver experience etc.

Liberalisation will encourage road users to be more responsible as safer drivers could be rewarded with lower premium / takaful contributions.
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A tariff is a set rate under the insurance act to ensure that premium charges and policy wordings are streamlined and controlled. When premiums are tariff, insurance companies are not allowed to vary the prices chargeable on the insurance policy.

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.

Liberalisation means insurers and takaful operators will be able to charge premiums that are in line with each individual risk. Insurers and takaful operators will also be able to market new products that are not defined under the tariff.

Insurance premium is calculated based on the sum insured and cubic capacity of the vehicle. Additionally, insurers are allowed to apply limited premium loading based on the age of the driver and the number of accidents on record. Depending on the driver’s claims history, the calculated premium to be paid is adjusted against the discount (No Claim Discount or NCD).

Typically, drivers with good driving records can enjoy a higher percentage of NCD up to 55%.

As Malaysia progresses towards a developed nation status, the insurance market is being opened up to allow a more equitable approach to the charging of premium.

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.

From 1 July 2017 onwards, premium rates for Motor Comprehensive; and Motor Third Party Fire and Theft products will be liberalised where premium pricing will be determined by individual insurers and takaful operators.

However, premium rates for Motor Third Party product will continue to be subjected to tariff rates.

Yes. Liberalisation has been implemented in other countries.
  • 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.

There will be wider choices and options of motor and fire products available for purchase and will be more suited to the individual’s needs.

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.

Effective 1 July 2017 under the liberalised environment, more risk factors will be taken into account in determining premiums. Other than the sum insured, cubic capacity of the vehicle engine, age of vehicle and age of driver, premiums may be driven by other factors.

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.

The NCD structure will remain unchanged and continue to be transferable from one insurer or takaful operator to another. You will be entitled to the NCD which you are eligible for.
The NCD structure will remain unchanged and continue to be transferable from one insurer or takaful operator to another. You will be entitled to the NCD which you are eligible for.
Motor Third Party insurance product will still be available for consumers who want to purchase basic motor insurance cover at tariff rate.
Although consumers will be more empowered, they can still consult their insurance agent with whom they have been consulting previously to answer all their concerns on insurance. They can also approach the companies directly and then make their own decision on the policy / cover they want to purchase.
A risk profile is an analysis of whether a consumer presents a high or low risk, based on certain factors. Each insurance company is expected to be guided by its own identified risk factors.

Insurance companies in Malaysia are closely regulated by the BNM and have adequate measures and guidelines in place to ensure proper and prudent underwriting and a sound marketplace. One of the policy intentions of BNM is to moderate the increase in competition and product innovation to ensure the industry and consumers will be able to adapt in a sustainable and gradual manner.

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.

For further information, please click here to visit PIAM website.