Focus View
Still waiting for lower tariffs
FocusM team | 14 Jul 2017 00:30
It has been two weeks since the detariffication of motor insurance premiums was introduced. From July 1, insurance companies could vary their premiums on policies instead of using a fixed rate. 

When premiums are tariffed, insurers are not allowed to vary the prices chargeable on a policy. Detariffication does away with that. 

But in reality, this is not being done. Consumers have not seen any changes to premium rates. Aren’t insurers supposed to charge according to a motorist’s risk profile?

Insurance companies are keeping mum on this. And so has Bank Negara Malaysia which regulates the industry.      
In the run-up to July 1, numerous leaflets stated that detariffication means cheaper insurance for consumers as the insurers were expected to compete. The hope was that “good” customers would enjoy lower tariffs while the “bad” ones will pay more.   

There is now fear that tariffs will remain the same for “good” customers but increase for the “bad” ones. That may explain why insurance companies are taking their own time coming up with new, lower prices to benefit consumers.

The detariffication plan was first mooted a few years ago. Insurance companies have had ample time to strategise and yet they have not announced any new rates when July 1 came around. Looks like consumers will be short-changed.  
The magnitude of any tariff adjustments also depends on factors such as to what extent the insurers have been successful in preventing fraud. Increased incidence of fraud squeezes earnings. Coupled with the fact that lower tariff rates may aggravate earnings growth, we can see why insurers are hesitant to lower tariffs. 

The general insurance industry is said to have suffered a 3% reduction in gross premium in Q1 2017, even before detariffication kicked in. Growth has also declined. 

Take LPI Capital Bhd, for instance. For the first half ended June, its general insurance arm recorded a 9% growth in pre-tax profit, much lower than the 25% growth achieved in the corresponding period last year. 

So, in challenging times, insurance companies will be in no hurry to adjust rates downwards. But any delay in doing this may lead to a perception that the industry is colluding, not only to ensure tariffs do not fall, but instead increase. 

The authorities must ensure that a new mechanism is in place soon to safeguard consumers’ interest so everyone can benefit from the detariffication. 

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