BNM close to appointing Pos Malaysia as agent

By HABHAJAN SINGH
THE central bank is on the verge of appointing Pos Malaysia Bhd as the agent for motorists to buy motor insurance from the industry pool, now that most insurers have declined to underwrite directly that segment of the insurance market.
It is understood that Pos Malaysia, the national postal services provider which has been in the red for financial years 2007 and 2008, will secure the contract to ensure that motorists are able to secure the third party insurance cover.
In the past few weeks, more and more motorists found themselves turned away by their insurers when they wanted to renew their third party cover. Instead, they were told to shop around at other insurance companies that may still underwrite that segment, but to little avail as most general insurers and takaful operators have stopped underwriting the risk directly due to the segment's high loss experience.
In light of this increasing difficulty, Bank Negara Malaysia (BNM) which regulates the insurance and takaful industry is understood to be turning to Pos Malaysia to act as an agent on behalf of the motor insurance pool, the insurer of the last resort.
As it is, Pos Malayia is already an agent for various general insurers who provide third party motor insurance, including the likes of Kurnia Insurance (M) Bhd and Allianz General Insurance Company (Malaysia) Bhd.
However, under the new proposed arrangement, Pos Malaysia would act as an agent for the Malaysian Motor Insurance Pool (MMIP), a high-risk insurance pool run collectively by the industry under orders from the regulators, and no longer as a direct agent for the insurers themselves.
At present, MMIP, which is a subsidiary of MNRB Holdings Bhd (MNRB), has appointed two insurance companies to act as its agents.
"With more and more insurers declining to underwrite third party motor insurance risk, their only other resort is the insurance pool run under MMIP. It only makes sense for the pool to be more widely accesible, and not limited to just two insurers who may not have branches throughout the country," said one industry executive.
Sources say BNM would be making the announcement on the alternate and new channels for purchasing third party motor insurance soon. Pos Malaysia seems to be the obvious choice simply due to its nationwide presence.
In 2008, the Government resorted to Pos Malaysia to disburse the fuel cash rebate. Pos Malaysia chairman Tan Sri Dr Aseh Che Mat in the company's 2008 annual report statement referred to this as a recognition that "Pos Malaysia has the widest retail footprint in the country."
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 highrisk insurance pool.
The report also noted that a recent decision by two local insurers — Kurnia and Pacific & Orient Insurance Co Bhd (P&O Insurance) — to completely stop providing third party cover to commercial vehicles is set to see a higher volume of premiums going towards the insurance pool, 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.

(This story appeared in The Malaysian Reserve on June 23, 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)

Motor insurance premium rebate blindsides agents

COMMENT by Habhajan Singh
The central bank should have done better when managing the policy directive on rebates for direct purchases from insurance companies.
The directive is wonderful: It is pro-people and puts money into their pockets should they buy their policies directly from the insurer. It also fits perfectly with Bank Negara Malaysia's (BNM) liberalisation plans for the financial industry.
However, the move jolted some 40,000 insurance agents. They claim that they first knew of the directive when they read it in the newspapers. Little wonder then, that they had a hard time digesting the news that the central bank would now allow individuals to pocket up to 10% of the premium value the next time they renewed their motor insurance directly with the insurer.
At a press conference to announce the initiative last week, BNM deputy govenor Datuk Mohd Razif Abd Kadir used the weight of his office to announce the move, despite protests from various corners.
Effective July 1, individuals who purchase general insurance coverage directly from insurance companies will be eligible to receive premium rebates, with the quantum depending on the type of incover purchased, the central bank said in a statement.
For motor insurance, it stated that an individual would receive 5% of the premium within the first year of implementation and 10% thereafter. For others including businesses, insurance companies have the flexibility in providing these rebates. The direct purchase includes walk-in, through the internet, direct mailing and via the telemarketing channel. In relation to consumers, it is a laudable move.
Consumers will now be able to renew their insurance policies directly, if they choose not to engage an agent, thereby actually saving cost. For insurers', they can no longer book as revenue the commission should customers come to them directly.
But they have been in the loop all this while. Left out in the cold, it would seem here, are the agents.
When asked, BNM officials at the press conference confirmed that they have been talking to officials at the Persatuan Insurans Am Malaysia (Piam), but not directly with any particular outfit representing the interests of the agents.
Here's the beef. Piam represents these companies, and not the agents. True, the agents come under the companies. Therefore, it is possible to argue that when the central bank talks to these companies, the message should reach the agents. But that does not seem to have taken place in this instance. With notice in advance, agents could have planned to weather a potential drop in income.
Some may have been spurred to add value in their offerings to customers. After all, not every customer is going drop their agent in light of the rebate. However if prior notice was offered, agents could have taken preemptive measures to keep their customers. One forward looking car seller cum insurance agent has, for example, been returning a portion of the commission earned to customers. This was to entice customers to stay with them.
With a little bit of warning, others may have come out with such simple but effective game plans.

(This story appeared in The Malaysian Reserve on June 24, 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)

Insurance premium rebate to go ahead, says BNM

By JASON NG
Bank Negara Malaysia (BNM) will proceed with insurance premium rebate, a move that would give “millions of ringgit” back to consumers, said deputy governer Datuk Mohd Razif Abd Kadir.
The latest policy has come under protest from various quarters as it would effectively give consumers the incentive to bypass the use of agents by mandating insurance companies to give rebates for a direct purchase from insurance companies.
"We should look at the broader perspective particularly in fairness toward consumers," Mohd Razif said in a media briefing in Kuala Lumpur last Friday [June 19, 2009].
The policy for direct purchase channels will be effective July 1, 2009 and the quantum of rebates will depend on the type of insurance covers purchased.
Direct purchase includes walk-in, via internet, direct mailing and telemarketing. For motor insurance, individuals will receive 5% premium rebate in the first year of implementation and 10% subsequently. For others including businesses, insurance companies have the flexibility of providing the rebates.
Last year, the general insurance industry recorded gross premiums of RM4.4 billion, half of which are from the motor insurance segment.
According to BNM, about 15% of the gross premium collected are via direct channels.
"This is part of our fine-tuning of policy to put cash back in consumers' pocket. It is not necessary that the livelihood of the agents would be affected. People will still use the service of the agents if (the service) are value-added," Mohd Razif said.
It is understood that insurance companies pay 10% of the premium to agents, numbering around 40,000 with 15,000 working full time, as commission and consumers should be entitled to enjoy rebates that would otherwise, be pocketed by the insurance companies, he added.
Among those reported to be unhappy includes Proton Dealers Association Malaysia that claimed the policy would "destroy" the automotive dealers network while General Insurance Agents Association Malaysia organised a meeting recently to protest the implementation.
"We had a lot of protest and pressures for us to withdraw," Mohd Razif said, adding that "there is nothing much BNM can do" should there be further protest from any quarters.

(This story appeared in The Malaysian Reserve on June 22, 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)

Motor insurance needs an overhaul

By Habhajan Singh
Motor insurance in Malaysia requires a serious overhaul, with the perennially unprofitable third party coverage demanding a separate treatment altogether, says a senior industry executive.
The issue has come to a boil for general insurers and takaful providers active in the motoring sector, with most of them now no longer providing third party motor insurance coverage due to the high claims ratio.
"I'm proposing a rethink of our Road Transport Act 1987 and a review of the motor insurance policy. A new government agency should be set up to handle at least the Act cover, while redesigned insurance policies should only cover one's own damage, leaving third party claims to the agency. An industry pool could provide base underwriting," said Datuk Syed Moheeb Syed Kamarulzaman, the newly appointed chairman of the Malaysian Takaful Association (MTA).
Under this proposal, a new industry pool would be setup to manage third party made compulsory by the Act, commonly referred to as the Act cover.
Here, Syed Moheeb proposes that each vehicle licensed holder should contribute individually to the pool. Currently, third party insurance is pegged to the vehicle, irrespective of the number of drivers nor the name it is insured under. A family car may be insured under the head of the family, when in fact it could be driven by all children. This could result in a situation of inadequate premium against the risks exposed.
The suggestion by the seasoned insurer is for everyone with a valid licence to bear a portion of the risk.
"When you pay for your motor licence, a portion automatically goes to cover third party claims. This way, the third party risk is automatically handled by the new pool," said Syed Moheeb who is also the president and chief executive officer of Takaful Ikhlas Sdn Bhd.
This would also mean insurers and takaful operators will only provide coverage for claims other than those mandated under the Act.
The pool could replace the Malaysian Motor Insurance Pool (MMIP), a high-risk insurance pool run collectively by the industry under orders from the regulators, which acts as the insurer of last resort.
Under the present set-up, when a vehicle owner is unable to get any insurer to provide him liability cover for third party, MMIP would step in to provide the cover, at a rate higher than what insurers are allowed to charge. Industry players have been lobbying for years to change the tariff-driven premium structure for motor insurance, claiming that providing coverage mandatory under the Act is almost a sure loss-making proposition.
The move has not yielded results thus far, industry executives said.
"So far, we have been looking at tweaking insurance premiums rather than changing the whole structure. Perenially, we have a problem of inadequate premiums to pay for the increasing third party claims.
"This year, several insurers have found it difficult to continue writing third party risks. So, if we want different results, we need to do things differently. We need to reengineer. This suggestion, if it happens, will be headed by a new body supported by the government," said Syed Moheeb.
Syed Moheeb, a seasoned insurer with experience in reinsurance, was involved some years ago when the general insurance association, Persatuan Insurans Am Malaysia (Piam), was actively discussing with Bank Negara Malaysia (BNM) suggested changes to the motor insurance premium tariffs.
In the meantime, industry executives said writing third party motor cover had become more and more untenable from the profit standpoint, forcing players to steer clear of the segment.
On May 27, The Malaysian Reserve reported that insurance companies are no longer willing to provide third party motor insurance under their banner, thus sending their customers to the highrisk insurance pool instead.
On June 1, this newspaper also reported that Pacific & Orient Insurance Co Bhd (P&O Insurance), one of the local top guns in motor insurance, was 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 the sector.
The general insurer, a subsidiary of listed Pacific & Orient Bhd (P&O), was second only to Kurnia Insurans (M) Bhd for underwriting third party motor insurance covers in 2008.
From latest figures released, Piam said combined loss ratios for the motor insurance business in 2007 and 2008 stood at 114% and 115% respectively. It said insurers have also expressed their concerns over the rapidly increasing claims pay-outs especially for third party bodily injury claims. The claims ratio for third party bodily injury claims skyrocketed to 262% in 2007 and 288% in 2008, it added.
Industry sources estimate that the standalone 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.

(This story appeared in The Malaysian Reserve on June 15, 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)

Motor claims a major drag on profits of insurance firms

By Habhajan Singh
Claims for motor insurance were a major drag on the operating profits of general insurance and takaful operators last year, according to an analysis of statistics released by Bank Negara Malaysia (BNM).
For 2008, operating profit of the general insurance and takaful business, which declined by 44.5% to RM0.7 billion, was affected by a higher claims ratio of 84.2%, mainly from due to claims by motor vehicle.
Last year, the claims ratio stood at 79.6%, which meant that for every ringgit of premium collected by these insurers and takaful operators, close to 80 sen went to claims. And the situation is expected to worsen, going by the caution thrown in by the the central bank's Financial Stability and Payment Systems Report 2008 released in March.
The BNM report said claims are expected to intensify due to higher incidences of theft and fraud as well as less regular maintenance. This will certainly put more pressure on providers of motor insurance, many of whom are pulling the plug when it comes to providing third party motor coverage.
"Bodily injury makes about 90% of third party claim. It is increasing, making it very painful for insurers.
"To make matters worse, there are fears that fraud syndicates are reaping big, big money from fraudalent third party bodily injury claims," said Takaful Ikhlas Sdn Bhd president and chief executive officer Datuk Syed Moheeb Syed Kamarulzaman.
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.
"It is the Act claim that is rising, and rising fast," Syed Moheeb said.
For this year, the central bank report released three months ago noted that the Malaysian insurance and takaful sector will also be affected by the potential lower demand for protection and related products in a highly competitive industry.
"In particular, the expected decline in vehicle sales will negatively impact the motor insurance and takaful business which constituted 45% of gross insurance premiums in 2008. Premiums are also likely to be affected due to an increase in surrender rates and lower sums insured as a result of policyholders' efforts to reduce costs during these difficult periods.
"In addition, claims are expected to intensify due to higher incidences of theft and fraud as well as less regular maintenance," the report said.
In the report, the central bank also noted that the insurance and takaful sector, while maintaining a comfortable solvency position, faced challenges in maintaining the growth in premiums and contributions from new businesses, compounded by intense competition in the industry. It said total net premium and contribution income grew by 2.4%, mainly attributed to the expansion in takaful business.
It also noted that demand for general insurance and takaful coverage on motor and marine, aviation and transportation related businesses moderated in tandem with the slower trade activities and a more subdued automotive demand outlook.
It said the gross direct premium and contribution for the general insurance and takaful business registered an increase of 5.5% to RM11.5 billion, driven mainly by the expansion in the fire segment.

(This story appeared in The Malaysian Reserve on June 15, 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)

Piam welcomes proposal to limit liability claims

by Habhajan Singh
Persatuan Insurans Am Malaysia (Piam), the association for general insurers operating in Malaysia, welcomed a proposal to limit the liability shouldered by insurance companies for motor insurance claims.
It is timely that the proposal to limit liabilities on third party motor insurance covers be considered seriously in order to ensure the viability and availability of third party insurance protection for vehicle owners, Piam said in a statement released yesterday [May 4, 2009], affirming a position long held by the grouping.
This was in response to a statement by Minister in the Prime Minister's Department Datuk Seri Mohamed Nazri Abdul Aziz on Wednesday.
One newspaper quoted the minister as saying the ministry would look at amending the laws covering motor insurance to resolve the matter. The report said public transport operators have been crying foul as insurance companies no longer want to insure taxis and buses.
Nazri said this was because the insurance companies claimed that they were losing money by insuring commercial vehicles. Nazri, the report added, said that at present operators could sue the insurance company for millions. The amendment would limit the liability shouldered by the insurance companies.
"This way, the vehicle would be insured, the operator would be able to claim during any accident and the insurance company would also be protected," one newspaper quoted the minister.
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.
On June 1, The Malaysian Reserve reported that Pacific & Orient Insurance Co Bhd (P&O Insurance), one of the local top guns in motor insurance, was 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 subsidiary of listed Pacific & Orient Bhd (P&O), was second only to Kurnia Insurans (M) Bhd for underwriting third party motor insurance covers in 2008.
In its response, Piam said for most countries in Europe, US and even Asean (except for Singapore, Brunei and Malaysia), the law provides for limited liability for third party risks arising out of the use of motor vehicles.
"In Malaysia, provisions for limiting liability will involve amendments to the Road Transport Act, 1987 and consultations with the Insurance Regulator on suitable amendments to the motor insurance policies to cater for the changes in limits of liability under the policy contract," it said.
Earlier, Piam had announced combined loss ratios of 114% and 115% for motor insurance business in 2007 and 2008 respectively. It said insurers have also expressed their concerns over the rapidly increasing claims pay-outs especially for third party bodily injury claims. Claims ratios for third party bodily injury claims skyrocketed to 262% in 2007 and 288% in 2008, said Piam.

(This story appeared in The Malaysian Reserve on June 5, 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)

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)

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)

Putting customers in the driver’s seat on motor insurance

Motor insurance is not something that usually generates massive amounts of news in the local papers. They are, thanks to mandatory laws, a necessity for vehicle owners to bear and not often thought of beyond that.
That all changed last week when news broke about a proposal by the General Insurance Association of Malaysia (PIAM) to introduce rebates of up to 10% to motor insurance policy holders who deal directly with insurance companies instead of going through an independent insurance agent.
The initiative, apparently, was the result of correspondence and meetings between PIAM and Bank Negara Malaysia to promote self-regulation within the motor insurance sector as well as to promote alternative channels of distribution that would spur industry growth and reduce the number of part-time agents.
When contacted by The Malaysian Reserve, Allianz Malaysia Bhd chief executive officer Alexander Ankel praised what his company saw as a move that could eventually lead to a more de-regulated market that is on par with what can be found in developed countries.
"Our experience shows that the culture of open dialogue as being promoted by (Bank Negara Malaysia) has always helped to smoothen the transition of the industry into a more deregulated market.
"We believe that our clients should be able to obtain our products through the distribution channel of their choice," he added. The European market, which is the Allianz Group home market, is an extremely open one that allows for innovative and multi-structured products and Ankel said the group's experience with its home markets indicated that a move towards deregulation was not a bad one.
"A career as a professional insurance agent creates thousands of job opportunities and delivers best customer-centric solutions to consumers," he added.
Some industry observers have indicated that PIAM's move is a welcomed and long overdue one that could help eliminate problems which have hindered the motor insurance sector, including unscrupulous independent agents.
However, there are also those who are against it. These critics have condemned the move, stating that such an initiative did not take into consideration the views of about 40,000 independent agents nationwide and the impact this would have on their livelihood.
The Proton Dealers Association Malaysia (Peda) went so far as to say that the move would destroy the automotive eco-system. According to various reports, Peda said PIAM's initiative could see independent agents lose more than 20% of their income as many new and second-hand car dealers do become agents for the general insurance agents.
At stake, it added, was that annual motor insurance premiums generated by these agents for the insurance firms on average hit the RM1 million per agency mark. The General Insurance Representatives Association Malaysia (Perwakim) has also voiced its criticism on the plan, stating that the industry, which was already feeling the impact of the global financial crisis, could see retrenchments taking place as the staff of up to 20,000 agents are let go.

When contacted, a Bank Negara Malaysia spokesperson said the central bank was not making any statements on the matter and to refer to a statement issued by PIAM last Saturday (May 23).
In that statement, the association said agents would remain a vital part of the sector even with the introduction of mandatory rebates for direct motor insurance purchases. It said agents would continue to be used as long as car owners were comfortable with and appreciative of an agent's services.
"The concern of some agents that there will be a mass exodus of their customers to purchase directly is highly speculative and unwarranted," it added.
PIAM said agents accounted for 60% of all business generated and that its move was intended to benefit consumers who wished to deal directly with companies; who wanted more choices in terms of how they purchased their policies; who wanted the savings generated by dealing directly and who were more mobile and IT savvy.
Allianz Malaysia's Ankel said his company catered to the needs of motor insurance customers via three dominant distribution channels, namely, agency, a bancassurance partnership with CIMB Bank and through motor franchises.
"We are committed to the strong agency workforce of Allianz Malaysia who play a very important role in our distribution capabilities and we are not considering shifting our business model to direct distribution (and) we also entertain walk-in customers who come to our branches to purchase direct insurance. — by Alfean Hardy

(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)