Starting July 1, 2017 the progressive removal of tariffs for the two classes, motor and fire would commence.
While it is expected that price war and competition between insurance companies will likely occur, players and consumers also have concerns over how business dynamics are expected to change.
According to Willis Towers Watson, a British-based global advisory, broking and solutions company, with detariffication, free competition will become prominent where insurers are free to design their products and also price them differently.
“Some insurers may seek to pursue a strategy which focuses on increasing their market share as against opting for profitable growth.
“Such an approach could trigger price wars, at least for products that are currently profitable; the prevailing RBC (Risk Based Capital) regime and the experience gained from other detariffed markets may act as a restraining factor,” says the research.
In such a situation, Willis Towers Watson says it becomes even more critical for insurers to focus on improving the overall quality of their book of business (risk profile of customers).
Willis Towers Watson also says that one of the concerns arising from detariffication is the impact on financial viability of insurers due to unhealthy competition.
Says a source in the insurance sector, the finer points of de-tariffication of insurance premiums for the motor and fire branches of business are currently being worked out by the industry, with the compilation of the relevant data to price in risk still a major issue.
“The question is, why did they introduce set tariffs in the first place? And now they want to remove it?
“Yes it may give an opportunity to insurance companies to offer competitive rates and create new products, but some may just find it irrelevant to offer motor and fire products if it meant they are bound to make losses.
“They may end up in lesser companies with such products and the consumers may be the ones suffering the impact,” the source says.
Bank Negara Assistant Governor Jessica Chew was reported saying that apart from Insurance Services Malaysia as one of the platforms to access industry data losses, she said the industry still needed more data to properly price in the risk to ensure people are paying premiums based on risk.
Post de-tariffication, motor premiums would be priced based on driver and vehicle profiles. Risk-based pricing would enable customers with good risk profiles to enjoy more competitive rates than those with higher risk ratings.
“Heading towards a liberalised environment by next year, she noted that consumers would still have the option to either buy an existing tariff-based motor or fire policy alongside new products offered by insurers.
“In other markets, we have seen motor insurance based on usage – paying premium rates on motor usage or how it is used. Insurers will have greater freedom to price such products based on risk,” Chew was reported saying.
Soo Wern Jun