Bank Negara considering risk-based system for vehicle insurers

Tags: Bank Negara | risk based | tariff base | vehicle insurance

Written by Yong Min Wei

Tuesday, 16 June 2009 19:46

KUALA LUMPUR : Bank Negara is studying the possibility of reviewing the “tariff-based’ insurance system for motor vehicles that had been effective since 1978 and replace it with a “risk-based” system, said Deputy Finance Minister Datuk Dr Awang Adek Hussein.

He said on June 16 the proposal was to ensure a level playing field in the motor vehicle insurance industry, it should have a more sustainable system where insurance premiums were based on risk instead of being controlled by tariffs, adding that Malaysia was one the few countries that adopted the “tariff-based” system.

He also said while the tariff-based insurance system recorded RM4.5 billion gross premiums for motor vehicles last year, the profits by insurers following underwriting performance were minimal as Malaysia had a high loss ratio of 80.9% as compared with Thailand (60%), China (68%) and Indonesia (70%).

“This means for every RM1, some 81 sen goes to claims. This has caused many insurance players to be less able,” Awang told the Dewan Rakyat yesterday when replying a supplementary question by Chong Chieng Jen (Bandar Kuching – DAP)

Chong had wanted to know whether the central bank had taken any steps to act on insurers that compelled old motor vehicles owners to purchase personal accident policy besides the “first party” or “third party” insurance policy. He had earlier asked the Minister of Finance to state measures by BNM on insurance companies that refused to accept “third party” insurance for old vehicles.

Awang said Bank Negara would not allow insurance companies to force motor vehicle owners to purchase “third party” or comprehensive insurance protections should the owners themselves were unhappy with it.

He said some insurers rejected certain risks which include that of old vehicles which were highly risky, stressing that there were a host of claims that were experienced by insurance companies on the particular vehicle category.

“However, as motor insurance is mandatory under the Transport Act 1987, the general insurance industry has set up Malaysian Motor Insurance Pool (MIMP) to act as the end-insurer,” he added.

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Last Updated on Tuesday, 16 June 2009 19:48

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