Gradual rise in motor insurance premiums

Motor tariff

PETALING JAYA: The latest adjustment to motor insurance premium rates, to come into effect on Feb 15, will not have a significant impact on insurers’ bottom lines, according to analysts.

Many view this as a gradual increase in premiums and not a big boost to earnings of motor insurers, as the move is part of the detariffing of motor insurance premiums which will be completed by 2016.

Some of the major players in motor insurance are Allianz Malaysia Bhd, AMMB Holdings Bhd and MSIG Malaysia. RHB Research analyst Kong Ho Meng told StarBiz the central bank had been gradually increasing motor premium rates since 2012, and that the increase of about 5% was marginal and almost similar to last year’s revised motor tariff premiums. Therefore, he said, this would not translate into significant earnings increase for motor insurance players. The revision of the rates in 2012 was the first of its kind after a non-revision of more than 30 years.

“The new revised rates do not come as a surprise as it is a continuation of the revision of the motor tariff premiums as part of the new motor cover framework announced by Bank Negara earlier.

“The effect on earnings of motor insurance players will not be significant as costs will move up proportionately. This is because claims, which form a large chunk of costs to motor insurers, are uncertain and difficult to predict. The other components of costs are commission and management expenses. Claims have gone up over the years and so motor insurance is a tough business and not a very profitable one,’’ he added.

An analyst with an investment bank said he expected insurance companies to enjoy better margins and revenue growth after the full implementation of the detariffing of motor insurance premiums in the next two years. This, he said, was because premium rates would be further differentiated in accordance with the risk profile of individual vehicles.

This is a win-win situation for motor insurers and vehicle owners, as those with good claims experience would enjoy much better premium rates than those with a higher risk profile, the analyst said.

Meanwhile, The General Insurance Association of Malaysia (Piam) said in a statement that the new motor cover framework had a two-pronged strategy, that is to enhance efficiency in the provision of motor cover by the industry, and a gradual price adjustment that would ensure that the public was able to purchase motor insurance at affordable premiums.

Under the framework, premium adjustments take effect from Jan 1, 2012 over a period of four years. This year represents the third round of adjustments on motor tariff premium rates.

The adjustments, according to Piam, would be small and implemented gradually. In respect of third-party cover, motorcycles of 110cc, for example, would experience a premium increase of between RM1 and RM3.50 per year (a maximum of 30 sen per month) over the next four years.

For a private car of 1,400cc, meanwhile, the premium adjustment would be between RM6 and RM34 per year (a maximum of RM2.80 per month) over the same period. For express buses, the impact of the premium adjustment on passengers would be minimal, at less than 10 sen per passenger per trip, it noted.

Unlike previous years, there is no premium adjustment for vehicles carrying commercial goods, taxis and cars for hire (chauffeur-driven) during this round of adjustment.