In less than two months we will be facing with one of the biggest changes we’ve ever seen taking place in the Malaysian insurance and Takaful industry. This change will affect all of us who own or drive a motorized vehicle. So here are seven things you need to know about it:
Phased Liberalisation of Motor and Fire Tariffs – Know these 7 things:
1. What it means – Phased liberalisation of motor and fire tariffs is also known as de-tariffication of motor and fire insurance. It means that the regulating body (in this case, Bank Negara Malaysia) will no longer tariff the pricing of motor and fire insurance. Insurance and Takaful companies in Malaysia will be able to determine their own methods in deciding each motor and fire insurance policy they sell.
2. Implementation dates – Phased liberalisation is carried out in two phases. Phased 1 took place on 1 July 2016 where insurance companies were allowed to introduce tariff-free insurance products to the market. Phase 2, which will be implemented on 1 July 2017, is when we will be expecting to feel the direct impact where prices of motor insurance will no longer be the same. However, Third Party cover will not be experiencing any immediate changes.
3. Why – The change is deemed necessary as cost especially for Third Party policy has become too high for the insurance and Takaful companies where the actual pay-out for claims is between RM 1.30 – RM 3.00 for every RM1.00 premium received. De-tariffication is also introduce fairer pricing where safe drivers will pay lower premium than riskier drivers will. This is not something unique to Malaysia, in fact many countries all over the world have been practising it for many years.
4. Pricing – Motor insurance premium under phased liberalisation will take into consideration the risk profile of the policyholder. Unlike the current practice where sum insured and vehicle engine size (cubic capacity) being the only factors determining the price of motor insurance. Because the price was tariffed (controlled), the premium we pay for our motor insurance has been the same (or almost the same) no matter which company we buy our policy from.
5. Premium calculation based on risk profile – Risk profile of policyholder means how likely the policyholder will be making a claim against his insurance and how big the claim amount will be. Factors that will determine one’s risk profile includes: Gender, driving experience, claims history, location of residence, occupation, vehicle type and model, use of vehicle, vehicle mileage and history of traffic offences. Under phased liberalisation, insurance companies will look at each policyholder’s risk profile to decide on the premium. Higher risk equal higher premium. Lower risk means lower premium.
6. What to expect – Aside from the obvious change in premium, expect fierce competition among the insurers. Insurers will compete in several ways to win over customers including introduction of a variety of innovative products, improve in service and professionalism and most importantly – price!
7. The role of the consumer – Consumers are mainly concern about price they pay for their premium, the service provided by the insurance companies, the policy coverage and its benefits. With the price difference that insurers will start to impose and the variety of new products they will be introducing, it is best for consumers to shop around before buying a policy. Consumers should compare products and prices offered by several companies to find the most suitable one. Call up several insurance agents to help you find what you need and do so ahead of your policy expiry date.
Here’s a video you you might find interesting.
Want to know more in depth about phased liberalisation of motor and fire tariffs? Go HERE and you will find lots more interesting information including videos.
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