- "Act" cover refers to third party death or bodily injury risks as stipulated under Road Transport Act, 1987.
- "Others" cover refers to risks other than those insured under "Act" cover including accidental own property damage, theft and third party property damage.
The deteriorating performance in the motor insurance portfolio is mainly contributed by the Motor 'Act' cover component, where the combined loss ratio has continued to escalate persistently from 177% in 2002 to 302.6% in 2010. The loss ratio of the "Motor - Others" component of the portfolio remained relatively high but stable at an average loss ratio of 90%.
As a result, on an overall basis, the motor insurance portfolio was unprofitable in 8 out of the last 9 years under review, with the combined loss ratio easing slightly to 107.9% in 2010 from 112% in 2009.
The ultimate combined loss ratios for various categories of vehicles that contribute to the adverse results based on an actuarial study for 2005 to 2007 were as follows:-
Claims Experience by Combined Loss Ratio, %
|Policy Type||Year||Motorcycle||Private Car||Goods Carrying Vehicle||Taxi||Hire Car||Bus|
The Motor Insurance Tariff premiums have remained unchanged for the last 33 years since 1978. There is increasing consensus amongst policy and decision makers that unless dramatic actions are taken to restructure the motor insurance business in a holistic and comprehensive manner, the business itself will become unsustainable.Key factors affecting the deteriorating results of the motor insurance sector are:-
- Inflation of spare parts prices, repair costs, legal fees, adjustors' fees, cost of claims administration, etc.
- Escalating court awards e.g. the highest court award was for RM9.8million.
- Vehicle thefts - the total number of stolen vehicles has increased significantly from 8,869 cases in 1997 to 40,284 cases in 2009 i.e. up 4.5 times over 13 years whilst the quantum of claims escalated from RM135million to RM606million in 2009, up 4.5 times in the same 13-year period.
- Fraudulent claims. These are fabricated or inflated claims perpetrated by syndicates or various parties to insurance claims or even ordinary law-abiding citizens who take opportunity to defraud insurers. Based on a study, bogus and inflated insurance claims cost the UK insurance industry over £1.6 billion a year and this would have added 5% to every policyholder's premium. When translated to the local scenario, the same 5% for insurance fraud will cost an additional RM650 million in premium payments by policyholders in Malaysia.
- Risk Based Capital Framework requires that each insurer maintain a capital adequacy level that commensurate with their risk profiles and was implemented from Jan 2009. Insurers are generally required to provide for additional capital or risk charges for their business risks. Inadequacies in premium ratings must be supported by higher capital requirements and this is the scenario that many motor underwriters are experiencing in the light of the deteriorating motor insurance results.