Another insurance player shuns 3rd party coverage

by Habhajan Singh
Pacific & Orient Insurance Co Bhd (P&O Insurance), one of the local top guns in motor insurance, is set to pull out completely from the third party motor insurance segment, following the trend of other insurance providers in Malaysia who have stayed clear of this sector due to the high claims ratio.
The general insurer, a subsidary of listed Pacific & Orient Bhd (P&O), was second only to Kurnia Insurans (M) Bhd for underwriting third party motor insurance covers in 2008.
"We have dropped writing third party at the head office," P&O managing director and chief executive officer Chan Thyse Seng told The Malaysian Reserve, adding that the insurer is still active in other motor related insurance business.
Industry sources estimate that the motor 'Act' insurance, which is the portion compulsory for all motorists, has generated gross premiums of close to RM600 million last year, with Kurnia Insurans and P&O Insurance conducting close to half of the industry's total.
The motor 'Act' insurance policy provides protection against death and injury to third parties. The third party motor insurance also provides protection against other legal liabilities such as damage to the property of a third party (usually somebody else's car or motorcycle or a neighbour's gate) and certain specified legal costs.
Under the third party cover, a policyholder may opt to include protection for loss or damage to his own vehicle due to fire or theft only.
On May 27, The Malaysian Reserve reported that insurance companies are no longer willing to provide third party motor insurance under their banner, and are instead sending their customers to a high-risk insurance pool run collectively by the industry under orders from the regulators.
The report also noted that a recent decision by two local insurers to completely stop providing third party cover to commercial vehicles is set to see a higher volume of premium going towards the high-risk insurance pool called the Malaysian Motor Insurance Pool (MMIP), which had already seen a big jump last year.
Even before the two local insurers made the decision, the motor insurance pool had collectively underwritten total gross premiums of RM13.33 million, which is four times more than the RM3.11 million in premiums in 2007.
"The third party aspect is just wrongly priced. Therefore, we will not be able to (underwrite) it. "Under the new rules, it's a question of what you want to write and what you are comfortable with. This is part and parcel of the RBC. I don't think its anything extraordinary," P&O's Chan said.
The Risk-Based Capital Framework for Insurers (RBC), is the new insurance regulatory regime that was implemented on Jan 1, 2009. Loss-making P&O Insurance was one of the few insurers still providing third party insurance cover, though the segment had seen a high claim ratio, thus making it an unprofitable segment of the motor insurance segment.
For the financial year ended Sept 30, 2008, P&O posted a net loss of RMRM32.62 million on a turnover of RM337.21 million. In the first quarter ended Dec 31, 2008, it posted a net loss of RM8.65 million on a turnover of RM85.39 million. Chan said that P&O is still very much a player in the motor insurance sector as some segments are still profitable.
In a press release early this year, General Insurance Association of Malaysia (PIAM) said general insurance companies are bracing for a rough 2009 as average motor premium continues to fall while insurers suffer from higherthan-expected claims ratio. It also noted that motor insurance comprises 44.3% of overall general insurance business in Malaysia.

(This story appeared in The Malaysian Reserve on June 1, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on insurance & takaful called UNDERWRITER)