GENERAL INSURANCE INDUSTRY FACES CHALLENGING TIMES
Kuala Lumpur, January 12 - General insurers in Malaysia expect a difficult 2009 as the global economic slowdown takes its toll on insurance premium growth, says Persatuan Insurans Am Malaysia (PIAM).
According to PIAM, general insurance companies are bracing for a rough 2009 as average motor premium continues to fall while insurers suffer from higher-than-expected claims ratio.
Motor insurance comprises 44.3 per cent of overall general insurance business in Malaysia.
In 2007, the general insurers paid out RM 3.49 billion or an average RM 9.6 million a day for motor claims, out of the total gross premiums of RM 4.68 billion collected in that year. The combined claims ratio (i.e. claims cost including acquisition and management expenses) amounted to 114 per cent in 2007. This claims ratio deteriorated further to 121 per cent in the first half of 2008.
PIAM's Executive Director, Lim Chia Fook explained, "This means that for every ringgit of motor insurance premium collected in 2007, insurers' expended RM1.14 to pay claims and cost of acquiring and managing the business. This figure has deteriorated further to RM1.21 for every ringgit of premium earned in the first half of 2008."
This campaign has two components. The first component comprises a poster campaign for schools which will promote the importance of wearing of helmet, bike safety and the correct road crossing procedures.
As a result, premiums collected from other classes of insurance business such as fire insurance are being utilized to subsidize the payment of motor claims.
The Malaysian general insurance companies have been suffering from high claims ratio which exceeded 100 per cent in four out of the last five years. The factors contributing to the claims ratio are largely due to increase in the frequency of vehicle thefts and road accidents as well as increasing severity of claims cost per accident especially for third party bodily injury claims.
Despite the reduction in fatal accident rates in the last year following the successful road safety awareness campaigns carried out by the Road Safety Department, claims paid out by insurers continued to show an increasing trend.
Furthermore, claims ratios for third party bodily injury claims alone which have exceeded 100 per cent for many years skyrocketed to 262 per cent in 2007 and 340 per cent in first half 2008.
PIAM said that express buses and goods vehicle are major contributors to the underwriting losses in the motor insurance class and have the highest claims ratios. In 2007, the combined claims ratio for express buses was 335 per cent, followed by goods vehicles at 155 per cent.
Also, the rising motor claims made by young drivers are another major concern to the general insurers. Industry statistics showed that the claims ratio attributed to young drivers (25 years and below) is about 40 per cent higher compared to other insured age groups.
PIAM said the further increase in labour costs for vehicle repair, falling vehicle values and the contraction of motor vehicle sales are contributing factors to the declining motor premium income and increasing claims ratio in the largest class of business underwritten.
The rising motor claims ratio has resulted in insurers adopting more stringent underwriting controls on motor insurance, including the application of premium loadings. Furthermore, this could impact the renewal and availability of motor insurance in 2009.
However, motor vehicle owners who find difficulties to obtain or renew motor cover can turn to the Malaysian Motor Insurance Pool (MMIP) to obtain motor insurance protections for their vehicles, Lim explained.
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