General Insurance Tough Year

The general insurance industry is bracing for a tougher year ahead on subdued motor premium outlook, as economic worries dampened consumer demand for new cars. Meanwhile, the prospect for higher car prices next year may also curb new purchases.

Earlier this week, UMW Toyota Motor Sdn Bhd said it would raise the prices of Toyota and Lexus vehicles due to the weaker ringgit. BMW Group Malaysia is also considering a price hike.

“We are seeing stagnant growth and higher loss ratio,” Malaysian Insurance Institute chief executive officer Datuk Syed Moheeb said when met at the Malaysian Insurance Summit yesterday.

For January to June 2015, gross written premiums in the general insurance industry expanded 2.3% to RM9.07bil. This was slower compared with 6.4% last year.

Motor insurance was affected the most, registering a much slower growth rate of 2.1% for the half year compared to 8.3% for the same period last year.

Generally, half of an insurance company’s business comes from motor insurance.

“Slower car sales, motor premiums go down,” Syed Moheeb said.

The Malaysian Automotive Association (MAA) had in July said vehicle sales in the first half of 2015 fell 3.3% to 322,184 from 333,156 units in the same period last year.

MAA had revised downward the projected total industry volume for this year to 670,000 from 680,000 units earlier.

The association also believed that the rest of the year will be more challenging for the local economy as well as the automotive sector.

The General Insurance Association of Malaysia had earlier lowered the industry growth forecast for 2015 from between 5.5% and 6.5% to between 3% and 4%, citing challenging business headwinds and the weakening of the ringgit.

Fire insurance, the second-largest class, saw a higher growth rate of 5% compared to 4.2% last year, it added.

Yesterday, Bank Negara deputy governor Datuk Muhammad Ibrahim touched on the upcoming removal of fire and motor tariffs during the Malaysian Insurance Summit.

“The initiative will allow the industry greater operational flexibility to innovate while ensuring that consumers’ interests remain adequately protected,” he said.

With tariffs abolished, premium rates will depend on the risk profile of individual vehicles and owners.

Under this move, the industry is likely to see different rates from insurance companies, where vehicle owners with a good claims record and better risk profile will pay a lower insurance premium than those in a higher risk bracket, according to a report.

Industry players expect the de-tariffication to come on stream by the middle of next year.

On Asia-Pacific developments, Muhammad said the region was expected to be a strong driver of world insurance growth, with its share of the global insurance market likely to rise to 40% in the next five years.

He expects that in the medium term, the region will benefit from the deeper regional financial integration as agreed by the leaders of Asean and the conclusion of Trans-Pacific Partnership negotiation.

Bank Negara wants to see common complaints and grouses against the insurance industry, including delays in claim settlement and mis-selling practices by agents, to be either reduced significantly or eliminated completely.