KUALA LUMPUR (March 23): Bank Negara Malaysia (BNM) continues to regulate motor insurance pricing despite the phased liberalisation of the motor insurance industry, the General Insurance Association of Malaysia said today, in a move to address prevailing perceptions on the status of the phased liberalisation on motor tariff and whether the motor insurance sector can be accurately described as an open market with total freedom in pricing.
In a statement today, the General Insurance Association of Malaysia, which is also known as Persatuan Insurans Am Malaysia (PIAM), clarified that while the process initiated for the gradual removal of motor tariff requirements has begun since July 1, 2016, pricing continues to be regulated by BNM.
"It is important to note that PIAM is not involved in the pricing decisions of its members. Going forward, the industry eagerly anticipates further liberalisation and looks forward to working with BNM on the eventual opening up of the motor market,” PIAM said.
Insurance tariff is defined as a regulated fixed-price list that determines the amount of premium insurance firms can charge consumers.
PIAM said today that during the motor insurance industry’s phased liberalisation which started on July 1, 2016, insurers are allowed to introduce new motor products to better serve the needs of consumers and price their insurance products according to insurers’ respective risk pricing models subject to parameters of +/-10% from the original tariff rates as at June 30, 2016.
The limitation thresholds are meant to cushion the impact of any sudden and significant changes in premium with potential adverse impact on consumers, according to PIAM.
"Any deviation from the aforementioned threshold will require the approval of the industry regulator BNM,” PIAM said.
"In future, PIAM believes that full liberalisation will lead to fairer pricing that will benefit safe drivers and lead to more product innovation, technologically-driven consumer solutions and a better overall consumer experience,” PIAM said.
According to PIAM, the motor insurance business has not been profitable for many years.
PIAM said that generally, there has been no increase in motor insurance premiums due to the regulated motor tariff even when insurance companies' motor insurance portfolios were registering losses.
"In the years where motor loss ratios were high, motor premiums were cross subsidised by other better performing insurance products thus balancing the sustainability of the insurance industry with the important socioeconomic function of meeting consumers’ need for motor insurance,” PIAM said.
At the time of writing today, BNM had not issued a statement in response to PIAM's statement.
According to BNM’s website, Malaysia’s insurance sector is governed under the Financial Services Act 2013 (FSA) and Islamic Financial Services Act 2013 (IFSA), both of which came into force on June 30 2013.
"The FSA and IFSA amalgamate several separate laws to govern the financial sector under a single legislative framework for the conventional and Islamic financial sectors respectively, namely, the Banking and Financial Institutions Act 1989, Islamic Banking Act 1983, Insurance Act 1996, Takaful Act 1984, Payment Systems Act 2003 and Exchange Control Act 1953 which are repealed on the same date,” BNM said in statement dated July 1, 2013.