Wednesday, July 6, 2011

Market Value for Motor Vehicles

How To Determine The Market Value of Your Motor Vehicle For Insurance?

Check no further…. read this; it is from the Central Bank, The Consumer & Market Conduct Department….

Insurers and Takaful operators must ensure that they (including their agency channel) provide the necessary market value advisory services in respect of advising their customers (those within the CONSUMERS category) on the correct value to insure. Customers should be given the necessary advices along the following lines:
the present market value of the motor vehicle – options as they are laid out:
    • which must be based on the industry’s Insurance Services Malaysia – Automobile Business Intelligence (ISM – ABI),
      • ISM – ABIsystem is solely owned by ISM and ISM is a wholly owned company of the insurance industry, where only members owned shares in the company, or
    • any other credible vehicle valuation database system
      • unfortunately there is nothing in regards this “OTHER SYSTEM” allowed by the industry as yet, so this leads to….
      • an enclosed (or rather monopoly as such….) system in the determination of vehicle’s market value…. – wondered if this posed any issue when the COMPETITION ACT comes into effect in 2012. Merimen and Red Book may complain that they are being marginalised….
  1. importance of insuring the vehicle at the appropriate market value, and
  2. effect of over-insurance and under-insurance when a claim is involved.
To summarise, this would fall within the existing Endorsement 113 – Motor Vehicle Market Valuation System
In cases concerning RENEWAL of insurance, the present market value should be indicated in the RENEWAL NOTICE sent out to the consumers. Although the Central Bank did mention an option of inserting this into the Product Disclosure Sheet (PDS), it is expected that the industry members should be proactive enough to do both.

Guidelines concerning Market Value  

(Issued By Bank Negara Malaysia)


1.1    The current market practice of insuring motor vehicles without reference to any vehicle valuation database has not only given rise to over-insurance or under-insurance by consumers but also disputes on market value of vehicle at the point of loss.  The subjectivity in determining the market value of vehicle could potentially lead to abusive practices to the detriment of consumers.
1.2    With the availability of industry motor vehicle valuation databases, insurers / takaful operators are now able to determine the market value of most of the motor vehicles at the point of sale as well as at the point of loss.
1.3    The objective of the circular is to ensure consumers are properly advised on the appropriate market value of motor vehicle to address over-insurance or under-insurance.  In addition, consumers will also be assured of objective determination of market value of vehicle at the point of loss.

2.1    The circular is applicable to general insurers licensed under the Insurance Act 1996 and takaful operators registered under the Takaful Act 1984, and their intermediaries.

3.1    The circular is issued pursuant to section 201 of the Insurance Act 1996 and section 69 of the Takaful Act 1984.

4.1      The circular is effective from 1 August 2011.

5.1    Insurers / takaful operators and their agents are required to advise consumers during the pre-contractual stage or renewal of motor insurance / takaful cover of the following:-
  • the present market value of the motor vehicle;
  • the importance of insuring the vehicle at the appropriate market value; and
  • the effect of over-insurance and under-insurance when a claim is made.
5.2    Advice to consumers on the present market value must be based on the ISM Automobile Business Intelligence System (ISM-ABI system) or any other credible vehicle valuation database.  The present market value should be indicated in the renewal notice or product disclosure sheet.
5.3    To ensure consistency in the market value of an insured vehicle at the point of insurance and subsequent claim, the insurer / takaful operator should use the same reference database to determine the market value of the vehicle in both instances.
5.4    The present market value should be provided to consumers without any additional charge to consumers.

5.5    If the consumer agrees to insure at the value recommended by the insurer / takaful operator, average clause will not be applicable in the event of partial loss claim.

5.6    However, if the market value of the motor vehicle is not available in the vehicle valuation database, the insurer / takaful operator may indicate the current sum insured of the vehicle, where available.  In such cases, the insurer / takaful operator should mention in the renewal notice that the sum insured indicated is based on the previous year’s sum insured, and that the current market value of the motor vehicle may have further depreciated.

While it is understood Central Bank signed off this directive with limited consultation with the industry members, members should nevertheless set it upon themselves to immediately resolve old issues of working out the list of “other” credible vehicle valuation systems, firstly is to provide options to both members of the industry as well as to the consumers, and secondly the industry cannot operate with just one system as unnecessary perception that the industry operates in some non-transparency state is certain to surface.
The other thing that members should work on is the existing rates to pay for the service linkup with the ISM-ABI system…. the charges are perhaps exhorbitantly high!
“Common…. Motor Insurance segment is not any profitable portfolio, on top of linking with the ISM – NCD, some Motor Franchise systems and JPI online the industry  now need to further link up for market valuation information! ….think the industry needs a break too….”

The Consumers’ Perspectives…..

Nonetheless, the consumers are now finding it friendly when buying their motor insurance – getting an appropriate market value and insuring it as such without the nightmare of under-insurance resulting in their insurer penalising them with the need to bear a portion of the repair costs.

Let the buyer beware!

But then do note the pitfall…. despite insuring this on an approved system driven market value, in the event of a theft or total loss to your vehicle, the market value is NOT the value determined at the time of purchase of your insurance policy. The insurance compensation that your insurer will pay you is the market value as prescribed by the said system at that time of loss! Then, who knows…. we may just find a loop hole somewhere to challenge it since the market value is deemed to be the RECOMMENDED MARKET VALUE OF THE INSURER.

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