Perwakim (the Malaysian Association of General Insurance Agents) has been made aware that Bank Negara has issued a proposal to resolve the present problem confronting consumers needing to take up third party motor insurance cover, because insurance companies presently are very reluctant, if not refusing outright in nearly all cases, to sell such insurance on the same terms and condition that have been applicable in the past.
Bank Negara recognises the fact that insurance companies have been suffering losses estimated to be around RM1 billion a year from claims on third party bodily injury and death (TPBID).
Perwakim, whose members are the insurance agents in Malaysia, note with disappointment that Bank Negara has not bothered to consult with the association on the above proposal and has instead invited comments from other interested parties and directly from members of the public.
In fact, Perwakim members are the only specially trained professionals in the field of insurance, aside from Piam (the General Insurance Association of Malaysia) who can provide proper advice to their clients, ie, the consumers, on such insurance cover.
Thus, we held a committee meeting to formulate a response and to provide constructive feedback to the Bank Negara proposal.
The following main points were noted:
a) The proposal to set up a new entity, the TPBID Newco, to replace the present high-risk motor insurance pool run by MMIP Services Sdn Bhd (MSSB), is likely to run into the same problems that are being faced now by consumers, Piam, and the insurance agents. There are too many similarities in the Newco to the present system that is already not working efficiently, with the likelihood that insurance companies will continue to incur losses, and consumers will endure all the hassle of purchasing the insurance at a high cost.
b) Consumers will largely remain ignorant of the risks involved in the present proposal and will continue to buy third party cover just to be able to renew their vehicle road tax for another year. For example, it is clear that there is no cover for third party property damage but the ordinary consumer will not fully appreciate the implications of this omission. There is also no claim on income loss after the age of 55.
c) No estimation of cost to the consumer has been given in the framework and thus parties to provide feedback cannot determine the value, ie, the cost/benefit of the proposal.
After due deliberation, the Perwakim committee has decided that the best proposal with the rationale for it, would be as follows:
1) Revert to the previous system of third party motor insurance cover but have the consumers pay an amount that is approximately equal to what they are already now paying under the present scheme of the high-risk motor insurance pool.
If Bank Negara is correct in its assessment that insurance companies have faced losses amounting to RM2.67 for every RM1 that was paid under the prior scheme, this suggestion should be viable, since in most cases now, the cost of third party cover in total, often works out to be more than 3 or 4 times what a consumer would have paid before.
2) Reverting to the previous system should not raise any more complaints from interested parties and the consumer, since this is what has been practised before and is being practised in other neighbouring countries, and is working as well as may be expected.
3) Consumers buying the insurance through agents will be properly advised by a professional and will be given very valuable and expedient services in the event of an accident, and often avoid the need to pay for a lawyer.
4) The idea that the TPBID Newco, which will be majority-owned by the government, will invest the premiums collected to seek material returns is not a good idea, since experience in nearly all countries has shown that such government undertakings often lag behind investments already carried out by private companies. In any case, there should hardly be any profit from third party motor insurance substantive enough to make a real difference.
5) Perwakim agrees to the idea of a cap or limitation on liabilities of up to RM2 million on TPBID for insurance companies. Ultimately, all payments on claims will affect the consumer and society, since companies cannot continue to make losses and not raise premiums, or failing which, refuse outright to sell the insurance.
Even companies themselves are protected by limited liabilities in Malaysia and in a way, this is just an extension of the latter for the insurance companies. Without due limitation to liabilities, insurance companies will reserve their right not to sell insurance to commercial vehicles which is the critical problem now facing owners and operators of such vehicles.
Perwakim hopes that its suggestions would be accepted and is ready to discuss the above points and to answer any queries pertaining thereto, if necessary, in a meeting with Bank Negara officers at a suitable time and place.
The writer is president, Perwakim.
