Mandatory discount for direct motor insurance customers

It's a dog eat dog world out there.....they said. Indeed it is true, agents have been discounting motor premium to their customers all this while in order to compete with one another, snatching and enticing customers creating a war path that eventually caught up with them. While aggressively transacting motor biz which is supposed to be done on Cash-before-cover, agents still continue to buck the Insurance Act and its regulations. Late settlement of premium is still rampant and money continues to be owed and this is not without the indirect blessing from the marketing staff of the insurance companies. Things had been abit lacking in controls as insurers inclined towards market and marketing driven rather than underwriting sensibly with growth that they can understand and digest.

With the implementation of the Risk based Capital this Jan 2009, Kurnia Insurance emerged as a clear casualty of their many years of aggressive motor portfolio growth. I would'nt wish to speculate whether their predicament is a result of their yester years' sins or not, but the loss ratio is rising....fast it seems. The main culprit it seems hitting the industry came from the motor thirdparty bodily injury (MTPBI).

The loss ratio for MTPBI for the industry has blown up to 272% out of a approx. RM380 million worth of Act premium written in 2007. Because this ratio has suddenly gone crazy, actuary tends to stare at this development and have to bring this in as a major factor in their computation of the loss development and actuarial analyses. Thus, most companies that write substantial % of motor portfolio have to contend with the fact that the case reserves in combined is just not enought to meet such actuarially calculated ultimate claims amount. The result is therefore reflected in the actuarial assessed Incurred but not reported reserves, culminating in more provision of claims reserves to satisfy the Central Bank. When you have to foot out a RM10 million or RM30 million to feed your balance sheet, thie is going horrendous especially when the world is facing an economic melt down.

So who is it to blame? The industry lose money, fingers start pointing and the following are the collection of reasons or scrap goat......? They said - > 30 years the tariff was not review, the courts are not only slow with the litigation process, they are bad with their awards, lawyers are crooks - they drived the costs up thru their inefficiency, there are just too many people who work as ambulance chasers, loading of the third party premium is inadequate......and the story goes on..... are all these fingering reasons the cause of it....well, you decide.

Off the General Insurance association goes to the Central bank and try working their way to get the removal of the premium cap. naturally the Bank rejected and this was after being squeezed with premium discounts for direct customers......citing two main reasons: that the industry needs a new distribution channel, ie. direct walk in (if this is a channel??) and internet-based channel, which I gladly agree; and the other reason being removal of certain profit commission barriers so that such commission can continue to be paid out annually to the agents.

Therefore, a little bit here and there, squeeze here and there, every where.....and we have arrived. Soon enough we should see Insurance companies giving out motor premium discounts to walked in customers as well as internet based transactions to the detriment of the agents.

But then can the agents blame the insurers for their predicaments? After all the insurers are trying to save their profit commission for the more profitable agents and to save their butts having being affected by the RBC and the 75% confidence level actuarial computation....it is only human if we all lose some and win some. Actually agents have to rethink about their future.....and one of the main agenda that I can think of is to collectively work towards a representative body so that the agents can be properly represented in this industry. But what can we said when most of the sizeable agents are still owing their principals a big chunk of premium.....especially on the non-motor portoflio. How can the agents get to be in a stronger position when premiums owed run in hundred of millions nationwide? Perhaps ti is going to be extremely difficult and to an extent mind blogling....not until we see a wave of new breed of agency coming into the market.

While it is certain that this mandatory motor discounting is going to be a reality this year, agents should not be overly worried.....the next best thing is to change ones' mindset, work towards innovation and creativity in discharging the services demanded by the customers. Moving towards internet based selling and servicing of customers is going to be one hell of an innovative solution. So start entering cyberspace and get familiar with the twists and turns of the other world.

But then.....don't worry I am behind you all, dear agents....... the industry is pushing hard to only allow such mandatory discounting for "natural" person only. THis means if customers who are biz, be they partnership, sole proprietor or corporation, they should not be entitled to any form of discounting.

Cheers.