Tuesday, May 26, 2009
Insurance firms shun 3rd party motor coverage
by Habhajan Singh
Insurance companies are no longer willing to provide third party motor insurance under their banner, and instead are sending customers to a high-risk insurance pool run collectively by the industry under orders from the regulators.
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.
"That's a huge spike in the pool. It simply means that there is that much more insurance business that insurers do not want to touch.
"This also means that general insurers will have to fork out more for the pool," an industry executive told The Malaysian Reserve.
And the latest decision by the two insurers to completely shut out commercial vehicles is set to compound the situation. After the recent annual meeting of MMIP, executives believe premiums underwritten by the pool could more than double, with one source estimating that, moving forward, the pool could conduct as much as RM3 million of business in a month.
"What no insurer wants to do, all must do. Hence, since no single insurer is willing to underwrite third party motor risk, it goes to the pool which is collectively underwritten by all 33 general insurance players in the country," said the executive.
Major players in the motor insurance sector include Kurnia Insurance (M) Bhd, Allianz General Insurance Company (Malaysia) Bhd, AmG Insurance Bhd, Tokio Marine Insurans (M) Bhd, Pacific & Orient Insurance Co Bhd, Berjaya Sompo Insurance Bhd and Uni.Asia General Insurance Bhd. The high claims ratio has seen insurers steering clear from underwriting third party liability coverage, the minumum insurance cover mandated by the Road Transport Act 1987.
Besides providing insurance protection against death and injury to third parties (which is provided under the 'Act Only' motor insurance policy), 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. Over the years, Bank Negara Malaysia (BNM) and the Ministry of Finance have formed a pool established by insurance companies registered under the Insurance Act 1996 to provide motor insurance to vehicle owners who are unable to obtain insurance protection for their vehicles. It is also commonly referred to as the insurer of the last resort.
This pool is managed by MMIP Services Sdn Bhd (MSSB), a subsidiary of MNRB Holdings Bhd (MNRB) incorporated in 2006. Among others, MSSB handles the administration, accounts, investment of the funds of the pool as well as the claims negotiations and settlements.
(This story appeared in The Malaysian Reserve on May 27, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on insurance & takaful called UNDERWRITER, appearing on alternate Wednesdays)