DEVELOPMENTS IN THE GENERAL INSURANCE INDUSTRY

Financial Sector Blueprint 2011-2020

The Financial Sector Blueprint marks a new phase in the development of the financial system in Malaysia and was officially launched by Bank Negara Malaysia (BNM) on 21st December 2011. The blueprint with the theme  Strengthening Our Future builds on and reinforces the solid foundations that have been achieved in the previous decade. The success of the first Financial Sector Masterplan produced a financial system that is well-positioned to respond to the new imperatives in the economic environment. The financial institutions in Malaysia are well-capitalized and have improved risk management and governance practices in place. This is largely derived from the cumulative effects of building strong institutions, developing an efficient financial infrastructure and enhancing the regulatory and supervisory framework. In total, the Blueprint sets out 69 recommendations to achieve the vision of the financial sector by 2020. Some of the broad roles and areas to be addressed by insurers and takaful operators are identified in the Blueprint as follows:-

  • To support higher value added business activities and infrastructure investments;
  • To meet the needs of the changing demography;
  • To intensify the internationalization of Islamic finance through regional and global takaful/retakaful outreach;
  • To enhance financial inclusion by providing adequate levels of protection across all segments of the population;
  • To promote extensive use of the e-payment systems;
  • To further expand consumer education and protection;
  • To enhance talent development: and
  • In relation to the Regulatory and Supervisory regime, to inter alia examine and monitor the impact of uplifting of price restrictions.

Competition Act, 2010 and the Personal Data Protection Act, 2010

The Association had formed a Task Force to conduct studies on the impact of the Competition Act 2010 and Personal Data Protection Act 2010 on general insurers vis-a-vis the operations of member companies and the current tariffs, rules and regulations applicable in the insurance industry. In this regard, the Association had engaged the services of a legal firm to assess the current position of the PIAM Constitution, fire and motor tariffs, the Inter-Company Agreement on General Insurance Business, agency registration, PIAM Approved Repairers Scheme (PARS) and other rules, regulations and bye-laws of the Association to ensure that these are in compliance with the Acts. The scope of work of the legal firm has also been extended to include advising or providing guidance to member companies in relation to these areas. The Task Force formed to address these two issues had also organized a Talk on the impact of the above two legislations on general insurers on 9th March 2011 for the benefit of members.

New Motor Cover Framework

Following public engagements on a proposal to provide a holistic solution to motor insurance issues faced by both insurers and consumers, BNM had taken note of the public’s opinion on the need to increase efficiency in claims settlement processes and to enhance the accessibility of motor insurance cover. From the consultation, it was also noted that the public was generally receptive to a gradual motor premium adjustment to the Motor Tariff which had not been revised for more than 30 years. Arising from the above, a two-pronged strategy was adopted under the New Motor Framework to enhance efficiency in the provision of motor cover including improving the accessibility for consumers to obtain motor cover and also enhancing the claims settlement processes. It was also agreed that there should be a gradual premium adjustment that will ensure the public is able to purchase motor insurance at affordable premiums, benefit from improving services and secure early compensation for third party bodily injury claims. The gradual adjustment to motor premiums was also seen as timely in view of the increasing level of car ownership, accident rate and claims in the country which had resulted in insurers being more cautious and selective in underwriting motor insurance. Under the new Framework, several immediate measurers were introduced in May 2011. Among the measures undertaken was to improve the accessibility of motor cover from the Malaysian Motor Insurance Pool (MMIP). Previously the MMIP’s cover was only available from two servicing insurers and their branches as well as the Pos Malaysia branches. The MMIP’s service was extended to include all general insurers and their branches nationwide with effect from May 2011. A Joint Working Committee (JWC) was formed comprising representatives from key Government agencies, insurance and takaful sectors, consumer and transport groups as well as the Malaysian Bar Council and chaired by BNM. Each sector, in principle, had given their commitment and undertaking to enhance their respective areas when dealing with consumers on insurance matters. The enhancement measures proposed by the JWC were the establishment of timelines to produce medical and police reports to facilitate early claims notifications, promote Court or independent mediation, setting up guidelines on compensation awards, judgment interest rates to be more reflective of market rates, promote legal aid services, simpler claims notifications processes with transparent claims settlement processes and also the establishment of a centralized call centre to assist road accident victims. It is anticipated that with these measures in place, claims settlement periods will be reduced significantly, leakages in the claims settlement system will be minimized, greater public awareness on steps to be taken following a road accident will be created and there will be simpler processes for victims to make insurance claims.

The JWC has successfully completed the following tasks:-

  • A review has been undertaken of the pre- and postjudgement interest rates in line with the prevailing interest rate regime. An interest rate of 4%, instead of the previous 8% was enforced by the Judiciary for cases awarded beginning mid-2011.
  • The Judiciary and the Bar Council have agreed for the Compendium of Personal Injury Awards to be uploaded on a dedicated website for the public’s information for transparency and ease of reference.
  • The Judiciary and the Bar Council are also actively promoting court mediation processes to speed up dispute resolution.
  • Timelines to produce police and medical reports are already in PDRM’s and Ministry of Health’s (MoH) websites for the public’s ease of reference.
  • The MoH has also agreed to assist insurers and lawyers in incidents of medical report tampering to reduce risks of potential exaggerated and fraudulent claims.

Other initiatives which are being formulated are:-

  • Introduction of a motor insurance claims kit comprising a simplified accident notification form, information on making a claim and a medical consent form.
  • Establishment of a 24-hour nationwide call centre (NWCC) to provide immediate and comprehensive assistance to accident victims.
  • Review of legal fees for bodily injury cases.
  • Leveraging on hospital counters to facilitate claims notification.
  • Developing guidelines on long-term nursing care

Separately, the Association is exploring the setting up of a panel of Claims Facilitators as an option for road accident victims to obtain independent and free advisory services when making motor bodily injury claims. The objective is to assist accident victims to have prompt and fair settlement of their claims whilst saving on legal fees and, at the same time, reduce opportunities for inflated or fraudulent claims. As part of the Framework, the first step of a gradual revision in the Motor Tariff premium rates was implemented effective from 16 January 2012, after non-revision of the tariff for 34 years. The adjustments in the premium rates will be reviewed periodically to ensure that the adjusted premium rates gradually become reflective of the claims experience. The premium adjustments, although small in quantum, are the initial steps towards de-tariffing of the motor insurance business by 2016.