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MOTOR INSURANCE RESULTS 2002-2008

The following report presents a summary of the performance and results of the Malaysian motor insurance portfolio for the past 7 years at the industry level.

Combined Loss Ratios by Year

Year 'Act' Cover Others Total
2002 177.0% 91.9% 102.0%
2003 197.2% 91.0% 103.3%
2004 213.3% 91.0% 105.2%
2005 193.9% 86.3% 98.6%
2006 229.1% 88.4% 104.4%
2007 277.1% 92.0% 114.1%
2008 288.7% 92.0% 115.5%

  • "Act" cover refers to third party death or bodily injury risks as stipulated under Road Transport Act, 1987.
  • "Others" cover refers to risks other than those insured under "Act" cover including accidental property damage and theft.

The deteriorating performance in the motor insurance portfolio is mainly contributed by the Motor 'Act' cover component, where the combined loss ratio has continued to escalate persistently from 177% in 2002 to 288.7% in 2008. The loss ratio of the "Motor - Others" component of the portfolio remain relatively high but stable at a loss ratio of about 90%.

As a result, on an overall basis, the motor insurance portfolio was unprofitable in 6 out of the last 7 years under review, with the combined loss ratio deteriorating to 115.5% in 2008.

The Motor Insurance Tariff premiums have remain unchanged for the last 31 years since 1978. There is increasing consensus amongst policy and decision makers that unless dramatic actions are taken to restructure the motor insurance business in a holistic and comprehensive manner, the business itself will become unsustainable.

Key factors affecting the deteriorating results of the motor insurance sector are:-

  1. Inflation of spare parts prices, repair costs, legal fees, adjustors' fees, cost of claims administration, etc.

  2. Escalating court awards e.g. the highest court award was for RM9.8million.

  3. Vehicle thefts - the total number of stolen vehicles has increased significantly from 8,869 cases in 1997 to 46,330 cases in 2008 i.e. up 5.2 times over 12 years whilst the quantum of claims escalated from RM135million to RM628million in 2008, up 4.6 times in the same 12-year period.

  4. Fraudulent claims. These are fabricated or inflated claims perpetrated by syndicates or various parties to insurance claims or even ordinary law-abiding citizens who take opportunity to defraud insurers Based on a study, bogus and inflated insurance claims cost the UK insurance industry over £1.6 billion a year and this would have added 5% to every policyholder's premium. When translated to the local scenario, the same 5% for insurance fraud will cost an additional RM500 million in premium payments by policyholders in Malaysia.

  5. Risk Based Capital Framework requires that each insurer maintain a capital adequacy level that commensurate with their risk profiles and was implemented from Jan 2009. Insurers are generally required to provide for additional capital or risk charges for their business risks. Inadequacies in premium ratings must be supported by higher capital requirements and this is the scenario that many motor underwriters are experiencing in the light of the deteriorating motor insurance results.

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