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Top 5 FAQs on Motor Detariffication: What you need to know

Did you know?

Motor insurance is mandatory insurance protection and accounts for close to two-thirds (66%) of the total general insurance market in 2015. Renewing car insurance annually would be on every driver’s checklist.

As you heard on the news, be it on newspapers or radio or TV, motor detariffication in Malaysia started in July 2017! For those who have no clue what it is all about, you’ve come to the right place.

We’ll be sharing with you the top five most frequently asked questions about phased motor tariff liberalisation.

Before we get into the top five FAQs, let’s take a step back and understand how car insurance currently works:

Current Tariff Structure (before 1-July 2017):

Insurance tariffs refers to fixed premium rates which means insurance companies are NOT allowed to sesuka hati charge differently for insurance products.

For example, the pricing of motor and fire insurance is based on the tariff structure and therefore everyone is buying an insurance product at the same premium rate for each plan type (example, Comprehensive private car/Third Party motorcycle / etc.)!

For the past 30 years, motor insurance premium is a tariff structure regulated by Bank Negara Malaysia.

Basic premium is calculated based on these four key factors:

  • Sum insured – How much is your vehicle worth today?
  • Vehicle engine capacity in CC
  • Region – West or East Malaysia
  • No-Claim Discount (NCD)

Other factors that may affect the tariff premium calculation:

  • Optional Covers – add-on products/services insurers packaged in a main policy, e.g. windscreen, personal accident and other protection that are not included in the basic plan
  • Loading – additional cost imposed by car insurer on certain condition, e.g. 10% additional premium loaded on cars that are over 10-15 years as it’s a higher risk for insurers
  • Excess – minimum amount that is borne by yourself when there is an accident, e.g excess limit is RM400 and you want to file a claim of RM600, you’ll need to pay RM400 and the insurer will reimburse the remaining RM200 to you

Here are the top five things that you should know when purchasing or renewing your new motor insurance beginning 1 July 2017. Detariffication in Malaysia is real and

What does detariffication mean, when and how will it be implemented?

Detariffication means removing the tariff structure. This will allow insurance companies to charge premiums that matches the risk profiles of its consumers. Different insurance companies can charge at a different price to its consumers for the same risk behaviour based on their business risks models and strategies.

Detariffication will be implemented gradually, this is BNM’s effort to ensure the consumers will not be shocked by substantial high premium rates. Here’s the simplified phases:

1 July 2016: First phase where insurers will be able to offer new products to consumers at a tariff rates. Existing Motor insurance premiums & coverages remain the same.

1 July 2017: Second phase where the premium rates for Motor Comprehensive and Motor Third Party Fire and Theft plans will be de-tariffed. Pricing of Third Party shall still in accordance to current tariff.

Side note: Adjustments of tariff made between 2012 to 2015 will face a gradual increase for some vehicle classes. By doing this, consumers will not be shocked by high premium rates if this class goes through detariffication.

2019: The progress on detariffication will be reviewed with an assessment of the impact on consumers and industry before full liberalisation takes place. (this means, fire Insurance will be detariffed in the future!)

What could be the pricing factors for a car insurance premium when detariffication occurs?

Insurance companies will use a pricing system called risk-based pricing. That is, it’s not only based on the CC of your car but other factors too, the higher the risk a driver will get into an accident, the higher the premium will be; however it applies to safe drivers as well who’ll pay a lower premium. Therefore, maintaining a good risk profile should be high on a driver’s priority.

With the detariffication of general insurance, every car insurance company will have its own pricing models based on different characteristics of drivers and vehicles.

  • Gender
  • Driver’s age
  • Usage of car
  • Claims experience
  • Occupation
  • Vehicle make and model
  • Other related factors

It’s nothing new, countries that have gone through motor detariffication include UK, USA, Germany, Thailand, Singapore, and China applied the same method too.

What are the expected outcomes and how will it benefit you?

Influence to insurers:

  • Encourage insurers to compete in providing consumers a wider range of motor products for different consumer needs and preference.
  • Improve insurers’ operational efficiency to serve its consumers better by providing a diversified and cost-effective distribution channels that allows them to purchase motor and fire insurance easily (yes, buy online lah!)
  • Quality of customer service will be better
  • You’ll not only have greater product choice, higher service level and improved accessibility of coverage but also enjoy various coverage limits that is customisable to match your profile

Benefits at a glance:

  • Prices of premiums will be fairer since it’s based on the amount of risk a driver carries
  • Enjoy a wider range of motor insurance products to cater to your needs
  • Easier access to purchase motor and fire insurance policies through your preferred channels
  • Better level of service by your agent
  • Premium rates are no longer the same as it’s based on business risk models and strategies
  • Lower risk drivers will be charged lower premium rates (so drive safely on the road and you can enjoy cheaper tariffs!)

Where can I get the best car insurance plan?

  • Agents – if you’re a lil bit school who needs someone to advise, nothing wrong with that!
  • Car franchise – car dealers, mostly for new car drivers but you can also opt out for this and DIY!
  • Direct channel or Banc assurance – You get to save a little from here but you’ll need to compare many different brochures and quotations.
  • DIY – for those who like to get things done in a single click, buy motor insurance online! (without driving which saves you time, cost, and the headache!)

What are the things you should look out for when purchasing car insurance?

Price should NOT be the only determining factor when you buy or renew car insurance especially with the detariffication of insurance in Malaysia.

We understand life is not easy. Why do we have to pay extra for unforeseen accidents now when we could use the money for better deals? But what if the odds really come to you and you need to dig out a huge amount from your pocket to pay for the losses as the car insurance you purchased does not cover you for this and that

To avoid regrets or claims that you’ve been cheated by your insurance, we’ve a checklist for you to consider the following coverages when you are looking for a suitable plan for your car and yourself!

  • Emergency assistance – roadside assistance and towing services – is it free or charged? If free, any T&Cs? If charged, is it reasonable?
  • Agreed value/market value sum insured; DON’T over-insure or under-insure your vehicle
  • Optional covers – Add-on services that you’d like to include into your basic plan.
  • Cashback – selected Takaful insurers may provide cash backs for you however it depends on the drivers’ claims experience. So, drive safely on the road!
  • Exclusions!! – terrorism, natural disasters and other unfortunate events
  • Customer service standards
  • Claims handling
  • Track record of insurers

NOW is the time to take a quick glance of your road tax and car insurance! See if your car is roadworthy and if it’s due for a renewal. Do keep in mind that you can renew your car insurance up to 60 days before its expiry!

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