Paul Sanchez
De-tariffication of motor insurance in Malaysia, which came into effect on 1 July 2017, is a liberalisation of the tariff structure that frees insurance companies to charge premiums based on their business risk models and the risk profile of the policyholders. This means that insurance companies will be free to use their own methods to calculate premiums, taking into account factors such as the insured's age, gender, and claim history, in addition to vehicle specifications. The de-tariff model is expected to result in lower premiums for low-risk consumers and encourage innovation and competition among insurance companies, ultimately giving consumers greater flexibility and customised coverage options.
| Characteristics | Values |
|---|---|
| Date of Implementation | 1 July 2017 |
| Previous System | Fixed premium rates controlled by Bank Negara Malaysia |
| New System | Insurance companies set their own premium rates |
| Basis of Premium Calculation | Risk profile of the consumer, including age, gender, claim history, etc. |
| Impact | More innovative products with competitive pricing |
| Consumer Action | Shop around for the best deal, secure your car, practice safe driving |
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What You'll Learn
- De-tariffication means insurance companies can charge premiums based on risk behaviour of consumers
- The government no longer controls premium calculation
- Insurance companies will use a risk-based pricing method
- Consumers will benefit from a wider range of product offerings, higher service levels and improved accessibility of coverage
- De-tariff model has lower premiums than the Malaysia tariff model
De-tariffication means insurance companies can charge premiums based on risk behaviour of consumers
De-tariffication of motor insurance in Malaysia means that insurance companies can charge flexible premiums that correspond to the risk behaviour of consumers. This change came into effect on 1 July 2017, when Bank Negara Malaysia, which previously controlled the tariff structure, announced the phased liberalisation of motor tariffs.
The liberalisation of the tariff means removing the fixed premium rates so that insurance companies can charge premiums that correspond to the risk profile of the consumers. Insurance companies will implement a risk-based pricing method, taking into account several risk factors beyond the market value and engine capacity of the vehicle. This includes factors such as the insured's age, gender, and claim history.
In the first phase, which began on 1 July 2016, insurance companies were given the flexibility to offer new motor products and add-on covers that were not defined under the existing tariff. The second phase, which began on 1 July 2017, saw the liberalisation of premium rates for comprehensive and third-party fire and theft coverage. However, pricing for third-party cover remained unchanged and was still governed by the Motor Tariff.
The de-tariffication of motor insurance in Malaysia will pave the way for more innovative products with competitive pricing to enter the market, giving consumers greater flexibility to choose the best protection according to their needs and preferences. Consumers will benefit from a wider range of product offerings, higher service levels, improved accessibility of coverage, and customised coverage that matches individual risk profiles.
To keep motor insurance premiums low, consumers can shop around for the best deal by comparing prices and services among insurance companies. Additionally, maintaining a good driving record and securing their vehicles can help reduce the risk profile and, consequently, the premium rates.
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The government no longer controls premium calculation
The liberalisation of motor insurance in Malaysia, which came into effect on 1 July 2017, meant that the government no longer controlled premium calculation. This change, also known as de-tariffication, removed the tariff structure that fixed premium rates, allowing insurance companies to charge premiums that correspond to the risk profile of the consumers.
Prior to the liberalisation of motor insurance, the government, specifically Bank Negara Malaysia, controlled the motor insurance premium and its calculation method. The premium was calculated based on the vehicle, including its market value and engine capacity. However, under the new guidelines, insurance companies can now implement a risk-based pricing method, taking into account various risk factors related to both the vehicle and the driver. This includes factors such as the insured's age, gender, and claim history.
The move towards a liberalised market began with a phased approach. In the first phase, starting from 1 July 2016, insurers were given the flexibility to offer new products at market rates. The second phase, which began on 1 July 2017, liberalised the premium rates for comprehensive and third-party fire and theft coverage. However, pricing for third-party cover remained unchanged and was still governed by the Motor Tariff.
The de-tariffication of motor insurance in Malaysia has resulted in a more competitive market with innovative products and pricing. Consumers now have greater flexibility in choosing the best protection according to their needs and preferences. It is important to note that while price is a factor when purchasing insurance, consumers should also consider other factors such as customer service standards, claims handling, and the track record of insurance companies.
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Insurance companies will use a risk-based pricing method
De-tariffication of motor insurance in Malaysia means that insurance companies will be free to use their own methods to calculate premium rates. This is a departure from the previous tariff structure, where premium rates were fixed and controlled by Bank Negara Malaysia.
Under the new risk-based pricing method, insurance companies will consider several risk factors when determining premium prices. This means that the premium price will not only depend on the vehicle but also on the driver. Factors such as the driver's age, gender, occupation, education, and claims history will be taken into account. The higher the risk a driver is assessed to be, the higher the premium price will be. Conversely, lower-risk drivers will benefit from lower premium rates.
This shift towards risk-based pricing is expected to increase competition among insurance companies, leading to lower premium prices, the introduction of new products, and improved services. Consumers will have greater flexibility in choosing insurance plans that cater to their specific needs and preferences.
It is worth noting that the implementation of de-tariffication in Malaysia is not a novel concept. Countries such as the USA, Germany, the UK, China, and Singapore have already adopted similar practices. The transition to a risk-based pricing method in Malaysia is expected to align with the practices in these countries, allowing for a more dynamic and competitive insurance market.
In conclusion, the adoption of a risk-based pricing method by insurance companies in Malaysia will bring about significant changes to the motor insurance landscape. Consumers will have more personalized premium rates based on their risk profiles, and they will have a wider range of insurance products to choose from. It is important for consumers to understand these changes and make informed decisions when purchasing or renewing their motor insurance policies.
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Consumers will benefit from a wider range of product offerings, higher service levels and improved accessibility of coverage
The liberalisation of motor insurance in Malaysia, which came into effect on 1 July 2017, has brought about significant changes to the way insurance companies calculate premiums and offer products to consumers. One of the key benefits of this liberalisation is the wider range of product offerings available to consumers. With the removal of the fixed tariff structure, insurance companies now have the flexibility to design and offer innovative insurance products with competitive pricing. This means that consumers can choose from a broader range of insurance options that better cater to their specific needs and preferences.
For example, insurance companies can now take into account various risk factors beyond just the vehicle specifications. These factors include the insured's age, gender, and claim history, allowing for more customised coverage. As a result, consumers can expect to find insurance plans that are more tailored to their individual risk profiles, providing them with enhanced protection on the road.
In addition to a wider range of product offerings, consumers will also benefit from higher service levels. With increased competition in the market, insurance companies will strive to differentiate themselves by enhancing their quality of service. This includes improving customer service standards, claims handling processes, and overall track records. Consumers are encouraged to consider these factors when shopping around for the best insurance deal, rather than solely focusing on the price. By prioritising service quality, consumers can ensure they receive the best protection and assistance in the event of an accident or claim.
The liberalisation of motor insurance has also improved the accessibility of coverage. With the introduction of risk-based pricing, consumers can now find insurance plans that are more affordable and aligned with their risk profiles. Lower-risk individuals, particularly those with good driving records and secure vehicles, may benefit from reduced premiums. This accessibility encourages more people to obtain the necessary protection, ensuring that they and their loved ones are safeguarded while on the road.
Overall, the liberalisation of motor insurance in Malaysia has brought about positive changes that favour consumers. The combination of a wider range of product offerings, higher service levels, and improved accessibility of coverage empowers consumers to make informed choices that meet their unique needs and budgets. By embracing this new landscape, consumers can take advantage of the enhanced flexibility, customisation, and competition within the motor insurance market.
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De-tariff model has lower premiums than the Malaysia tariff model
Malaysia's motor insurance industry has undergone significant changes in recent years, with the introduction of the de-tariff model in 2016 as a replacement for the previous tariff structure. This new model has led to lower premiums for some motorists, offering a more equitable approach to premium charges.
The previous tariff structure was regulated by Bank Negara Malaysia (BNM), utilising a set rate to ensure standardised premium charges across the industry. However, the de-tariff model, also known as liberalisation, removes this fixed structure, allowing insurance companies greater flexibility in setting premiums based on individual risk assessments. This shift empowers insurers to consider a broader range of factors when calculating premiums, including residence location, vehicle make and model, use of vehicle, occupation, claims history, gender, and age. Consequently, motorists perceived to be lower-risk will benefit from reduced premiums.
The transition to the de-tariff model was gradual, with the first phase commencing in July 2016, when insurance companies began offering new products at market rates. The second phase, effective from July 2017, witnessed the liberalisation of premium rates for comprehensive and third-party fire and theft coverage. While the pricing for third-party cover remained unchanged, premium rates for other types of coverage became determined by individual insurance providers, resulting in a more competitive market.
The de-tariff model has introduced greater competition among insurers, incentivising them to innovate and enhance their service offerings. This competitive environment benefits consumers by providing a wider range of products at competitive prices. Additionally, safer drivers are rewarded with lower premiums, encouraging responsible driving practices and reducing accident rates.
In conclusion, the de-tariff model in Malaysia has resulted in lower premiums for motorists deemed to be lower-risk. This shift towards risk-based pricing has increased competition in the insurance industry, leading to improved service quality and product innovation, ultimately offering consumers greater flexibility and customisation in their insurance choices.
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Frequently asked questions
It is the removal of the tariff structure, freeing up the fixed premium rates so that insurance companies can charge premiums that correspond to the risk profile of the consumers.
The liberalisation of motor insurance in Malaysia started on July 1, 2017.
Consumers will benefit from a wider range of product offerings, higher service levels, improved accessibility of coverage, and customised coverage that matches individual risk profiles.
A risk profile is an analysis of whether a consumer presents a high or low risk, based on certain factors. Each insurance company is expected to be guided by its own identified risk factors.
Here are some tips to keep your motor insurance premium low:
- Shop around for the best deal by comparing prices and services offered by different insurance companies.
- Secure your car by installing alarms, auto-locks, and a dash-cam, and always park in a safe location.
- Drive safely and avoid accidents or traffic violations to maintain a good claim history.
