This article first appeared in The Edge Financial Daily on October 31, 2017

KUALA LUMPUR: A fraud intelligence system (FIS) will be introduced by the Malaysian insurance and takaful industry in August next year to enable insurance companies and takaful operators to detect and investigate insurance fraud.

ISM Insurance Services Malaysia Bhd chairman Kong Shu Yin said a pilot run for the FIS — which was launched yesterday at the seventh Malaysian Insurance Summit by Bank Negara Malaysia governor Tan Sri Muhammad Ibrahim — had commenced last month involving four insurance companies in Malaysia.

“The first phase of the FIS will focus on motor insurance alone and will be rolled out to the whole industry [gradually],” he told a news conference in conjunction with the event yesterday.

He added that the insurance industry has invested over RM10 million in the FIS, which was developed together with BAE Systems.

“It’s a sophisticated system, making use of big data analytics and combined with the experience of insurance executive claim examiners ... together we can combat insurance fraud,” he said.

Kong also said the insurance industry had paid out in 2016 a total of RM5.8 billion in motor claims itself. “[Research] has shown that 10% of those claims are estimated to be fraudulent. If you take 10% of RM5.8 billon, that is a whopping RM580 million lost due to insurance fraud.

“Now we are moving into de-tariff pricing which is a good and bad thing as any savings will be passed down to the consumers, along with the costs too,” he said.

“So, any insurance fraud will add on to costs, which will be passed down to consumers, that’s why we are very serious in coming out with the system to combat insurance fraud,” Kong added.

Earlier in his keynote address at the summit, Muhammad said that the establishment of the FIS is a milestone in the industry’s efforts to combat fraud, especially in the motor business.

“This is a long-overdue development. Its success and benefits will very much depend on achieving the widest possible network effects.

“We expect all insurers to support these arrangements. Insurers who refuse to participate in this scheme will be looked upon unfavourably. We shall also take note of these recalcitrants’ failure to participate for a common good,” he said.

On a separate note, General Insurance Association of Malaysia (PIAM) chairman Antony Lee said the association is still working with the authorities regarding the proposed decision taken by the Malaysia Competition Commission (MyCC) in February to fine the PIAM and 22 of its members RM213.45 million for being parties to an alleged anti-competitive agreement.

“We are still working with the authorities, we still maintain our position that the industry is doing what’s best for the consumers, so we hope that it will go through the due process and hopefully the right outcome will be there, but PIAM always maintains that the whole initiative was there to benefit the consumers,” he said.

On Feb 22, MyCC issued a proposed decision against the PIAM and its members over the agreement with the Federation of Automobile Workshop Owners’ Association of Malaysia on trade discount rates for parts of certain vehicle makes and labour hourly rates for workshops under the PIAM Approved Repairers Scheme.

MyCC had claimed that this infringed the Competition Act 2010, and proposed to impose various remedies including financial penalties against the 22 general insurers.