Unbundling tariff allows insurance premiums to be priced according to risks. In line with the New Motor Cover Framework, the third upward adjustment to motor premiums was made in Feb 2014.
Motor insurance premium rates is expected to drop as competition intensifies with the abolishment of statutory tariffs 2016 but insurers will bear the brunt in the initial stage. Competition will intensify once the statutory tariffs are abolished. Competition will drive down premiums, push up claims ratio, and drag profitability in the initial stage. But some normalisation over the years and the industry would be better off in the long term.
It noted that the extent and impact of de-tariffication is still unclear due to ongoing discussions between industry players and Bank Negara Malaysia (BNM). Most insurers we spoke to prefer a gradual removal of tariffs (rather than full enforcement in 2016) to enable the market to adjust and find equilibrium pricing. This would reduce shock to insurers and avoid a steep premium hike for consumers.
Post detariffication, motor premium will be priced according to driver and vehicle profiles. Risk-based pricing would enable customers with good risk profile to enjoy more competitive rates than those with higher risk ratings.
Insurers with good claims experience (low claims ratio) will benefit as they would have room to price their products competitively to gain market share, while the bigger players would be able to reduce operational costs by leveraging on economies of scale and improving efficiency.
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