KUALA LUMPUR: Bank Negara Malaysia (BNM) has come out to defend the General Insurance Association of Malaysia (PIAM) and 22 of its members against anti-competition watchdog MyCC, which has issued a proposed decision to fine them RM213.45 million for being parties to an alleged anti-competitive agreement.

In a statement yesterday, the central bank described the decision by MyCC, which stands for the Malaysia Competition Commission, as “most unfortunate”, as it will “severely impact consumers’  interests”.

It said public benefits are served by the arrangement that was mutually agreed between PIAM and the Federation of Automobile Workshop Owners’ Association of Malaysia (Fawoam).

“The arrangement was put in place in response to a clear directive from Bank Negara Malaysia to the general insurers in 2011 to address disputes between workshops and general insurance companies over insurance claims payments for motor repairs.”

Such disputes, it said, had resulted in prolonged delays in repairs and caused significant inconvenience to consumers.

“Complaints were also received by the bank on unsatisfactory and high costs of repairs. The bank had received more than 500 complaints of this nature in 2011 alone, prior to the arrangement. Such complaints have now been reduced by 50%,” said BNM.

The arrangement, it went on to say, was necessary to reflect reasonable costs of repairs in an environment where motor insurance premiums are regulated by a tariff.

“Inflated claims, if not effectively controlled, would have necessitated significant adjustments to the tariff premiums affecting all consumers, or risked general insurance companies withdrawing altogether from the motor insurance market,” it said.

In 2012, it said, in relation to motor third-party bodily injury claims over one million motor vehicles were referred to the motor insurance pool for declined risks due to difficulties faced by consumers in securing motor insurance at the prevailing tariff rates.

“The bank subsequently sought and obtained the government’s approval to implement staggered with limited incremental revisions to the tariff. The tariff still remains in place today,” it added.

On Tuesday, MyCC announced that it had issued a proposed decision against PIAM and its members on Feb 22 over the agreement with the Fawoam on trade discount rates for parts of certain vehicle makes and labour hourly rates for workshops under the PIAM Approved Repairers Scheme (PARS).

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

In response to BNM’s statement, MyCC said, “We have no comment at the moment”, when contacted by The Edge Financial Daily.

Meanwhile, BNM went on to point out that measures are currently being undertaken by the bank to implement broad reforms in the motor insurance market, which includes the gradual liberalisation of the motor insurance tariffs, with the aim of promoting a more competitive market while ensuring affordable motor insurance premiums in the long term.

“Without appropriate arrangements to control inflated and fraudulent claims, which are being addressed as part of the reforms, these objectives will be severely undermined,” said BNM.

The central bank also stressed that it firmly believes that public interests are best served by continued progress on the reforms in the motor insurance market.

“Any decisions to review the arrangement independent of these reforms, without taking into account consumers’ interest, would prevent the public from enjoying timely settlement of motor insurance claims at reasonable costs and having confidence in the quality of repair works,” said BNM.

On that note, the central bank said it will “continue to pursue a resolution of this matter in the best interests of the general public”.

Separately, PIAM said it is disappointed with MyCC’s decision, and called for the commission to reconsider its proposed financial penalty.

“PIAM has always worked in the best interests of the consumer and in full compliance with the directions of its regulator, BNM. The PIAM-Fawoam agreement was reached on BNM’s directive to resolve significant consumer complaints regarding repair times in the motor insurance industry,” stressed PIAM.

The association added that it will be obtaining legal advice to defend its position that the arrangement was not an anti-competitive agreement.

According to MyCC’s statement on Tuesday, it alleged that PIAM and its members had fixed the parts trade discount at 25% for Proton, Perodua, Nissan, Toyota, Honda and Naza vehicles and 15% for the Proton Saga BLM model.

Labour rate, it said, was fixed at RM30 per hour for PARS workshops.

Among the 22 PIAM members named by the MyCC were AIA Bhd, AIG Malaysia Insurance Bhd, Allianz General Insurance Co, AmGeneral Insurance Bhd, AXA Affin General Insurance Bhd and Berjaya Sompo Insurance Bhd.