PETALING JAYA: LPI Capital Bhd could experience pressure on its fire insurance underwriting margins in light of further tariffs.
In a report yesterday, AmInvestment Bank Research said Bank Negara will be reviewing Phases 1 and 2 of the adjustments to the fire and motor tariffs that have been completed after June 2019.
“Going forward, more pressure is anticipated on the premiums for fire. This could see a decline by 10% to 15% in the product’s underwriting margin should there be further easing of the tariff pricing.
“Nevertheless, we do not expect any major market disruptions should the sector liberalises further. This is based on the impact seen from the full liberalisation of the motor insurance pricing,” it said.
To mitigate the pricing pressure on motor and fire products, the research house said new products with additional coverage need to be introduced.
“These new products can be priced at a premium to tariff rates. Based on BNM’s guidelines, pricing for new fire and motor products with additional coverage could be in the range of plus, minus 30% and plus, minus 10% from the tariff rates respectively.”
On fire insurance, the research house said small and medium enterprises makes up 60% of the group’s total fire policies and 40% of the all fire premiums.
“Meanwhile, for the mid and larger segment’s fire insurance, these comprised 40% of its total fire policies and 60% of the total fire premiums. LPI Capital has a market share of 17% on fire insurance and is still ranked number one.”
AmInvestment Bank Research noted that the Motor Insurance Pool (MMIP) is gradually shrinking, as some of the motor insurance businesses have been insured directly by companies.
“We gather that insurers are underwriting more of the motor insurance directly, leveraging the flexibility in pricing. Arising from this, insurance companies are expected to make lesser contributions to MMIP, resulting in a lower drag on their earnings in the future.”
LPI Capital focuses on insuring mainly second-hand cars and lesser on new vehicles under franchise dealers such as Tan Chong Motor. This is due to the latter imposing certain requirements for repair works which may lead to a higher cost of repairs, hence increase in claims.
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