What is Motor De-tariffication?
Is the implementation of a risk-based approach in determining the calculation for motor insurance premium. It is being implemented in phases and started in June 2016.
How premium is determined today?
For the past 3 decades, motor insurance premium in Malaysia is controlled by Bank Negara Malaysia based on a tariff structure. To the end consumer like you and I, this means that the price we pay for our motor insurance premium is pretty much the same, no matter which insurance company we buy our motor policy from. This is WHY many of us have never paid attention to which company we buy from. Many of us do not take the time or bother to “shop around” for cheaper price.
What determines premium calculation today:
- Market value of vehicle
- Vehicle engine size (cc – cubic centimeters)
A big change is coming and how it will affect us
1. Risk-based premium calculation
The change will be big and it will affect all Malaysians who buy a motor insurance policy. What does risk-based premium calculation mean? It simply means that when determining the price of premium, insurance companies will take into consideration several risk factors, such as:
- Gender of driver
- Age of driver
- Vehicle make and model
- Driver’s place of residence
- Claims history
- Use of vehicle
- Driver’s occupation
The list could be longer and the risk factors may differ from one insurer to another. This means that some insurer may be stricter in determining premium price for their policy while others may be less stringent.
2. Introduction of new products
In the effort to be competitive, insurers are likely to start introducing additional products and/ or add-on covers to the customers. To us consumers, this means more options available to cater for our needs and preferences. However, while these add-on covers are expected to be optional, some companies may include or package them with the basic motor policy.
3. Increase in competition means an increase in professionalism
Knowing that consumers will now have to ‘shop around’ for a company which offers a product and service that suits their needs and budget, insurance companies will need to start competing aggressively among themselves. One way to do this is by offering the end consumer top notch service and professionalism.
But how will this affect premium cost?
This is perhaps what most of us want to know. No one can give a definite answer. However it is good to first understand that one of the reasons why this change is taking place is due to the growing gap between premium collected and claims paid out by the insurers. This has resulted in an unsustainable motor insurance business to the insurers. One thing certain is that premium will now vary among individuals, due to the varying risk factors.
How can we prepare for it?
One thing we shouldn’t do is to wait till one week before the expiry of our motor policy to consider looking for an insurer that offers the right product at the right price for us. Many of us tend to stick to the existing insurer. But with the full implementation of motor de-tariffication, this may no longer be an option. Especially since doing so may cost you a lot of money as oppose to you finding an alternative insurer who offers the same service and coverage at a lower price.
As a preparation, what we can do is to start comparing prices, products, and service level among insurance companies. Some of the factors which we can start to assess are:
- Which companies have a habit of ‘packaging‘ add-on covers with their main policy which may not be necessary to us.
- How much loading (in %) these insurance companies are placing on your premium for additional risks
- Which companies are generally known for professional service. And which are known for unsatisfactory service
- Even more importantly, which companies offer excellent service, in handling issues or a claim
- Which company pays out the fastest, when you have a claim
This information will help us in shortlisting the insurance companies which we may consider in purchasing our next policy from after the full implementation of motor de-tariffication in June 2017. Hence making it easier for us to do pricing and product comparison.
Annual campaign for the search of Malaysia’s Best Motor Insurance Company
One way iBanding is helping the Malaysian consumers is by offering them a platform where they are able to have their voices heard. Every year, iBanding conducts a survey where the consumers are able to rate their motor insurance company and insurance agent. At the end of the campaign, iBanding will gather all the data and identify the top 3 best insurers. This information helps narrow down the list of insurance companies which we can prioritize in making our comparison. This info will save us time and energy when shopping for the right insurer. As we can safely eliminate insurance companies that have done poorly in the survey.
The participation of the public is crucial in order for all of us to obtain the most accurate, useful and relevant data. So we urge all Malaysian motor policyholders to contribute in this research by answering a few questions concerning your current insurer. Remember, your information will benefit everyone of us!
How you can participate. Click here:
Read more about Malaysia’s Best Motor Insurance survey here.