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Insurance deregulation — expect premiums to rocket through roof

POSTED BY Nigel Andretti ON 06 March 2015

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By YAMIN VONG
FORGET the Goods and Services Tax (GST). If you’re a motorist, your insurance premium is probably going to go through the roof starting next year when the insurers are deregulated so that they can try to staunch their bleeding from motor insurance claims.

Last year, the motor insurance industry paid out RM5.8 billion in claims. That’s on the back of losses over many years and the companies have tried to stem them by various means, including “loading” of surcharges on old cars.

Better late than never, Bank Negara intervened three years ago to phase out the traditional structure of motor insurance based on engine capacity, the so-named “Tariff Structure”.

After de-regulation, insurance companies are allowed to draw up their own pricing structure to replace the existing Motor Insurance Tariff.

So consumers will be charged based on a combination of new factors, including age of driver, driving experience, occupation, where the car will be parked day and night.

Effectively, this means that motor insurance will be based on what insurers believe should be charged based on the new categories. Chances are that your premium will go up because this way of computing is still the traditional way albeit with more categories. There is no new element of “smart” in it, using the analogy of a simple handphone and a smartphone.

However, if we observe the evolution of the insurance industry in Britain, Europe and the United States, usage based insurance (UBI) that uses telemetry will take its place in Malaysia.

UBI, such as pay-per-use or pay-how-you-drive, has grown by leaps and bounds since these insurance products were launched 13 years ago. The first was in Italy in 2002 and last year, the number of UBI subscribers in Italy was growing at a rate of 500,000 a month.

Why UBI? What are the benefits of UBI over traditional insurance policies?

Traditional insurance rewards customers using historical data, like whether you have made any accident repair claims, third party claims or theft claims.

It is not based on the mileage the vehicle is used or how you drive the vehicle. The reward is a yearly premium discount called NCB or no claims bonus.

After five years of claims-free driving, the maximum NCB in Malaysia currently is 55 percent. And the NCB only applies to one vehicle.

NCB table

Year 2 NCB 25%
Year 3 33%,
Year 4 38%,
Year 5 45%,
Year 6 55%

So, to be fully rewarded for being a good driver, a new driver will have to pay extra for the first five years of owning a vehicle before he receives 55 percent NCB reward on the 6th year.

UBI is based on current, not historical usage… you pay for how much you drive and how you drive. UBI promotes safety by incentivising vehicle owners to be better drivers and to reject fraud if there?s a crash and repair.

So how does it work?

UBI works by using telematics technologies in conjunction with car makers.

One of the features of premium cars is that the manufacturers fit them with telemetric hardware for tracking the car, monitoring the driving performance and the engine parameters such as engine temperature, oil pressure, engine speed, etc.

With telematics technologies, the connected car prompt your service provider that the car has been in a crash with airbags deployed; the service provider can then call you through your handphone to ask how you are and to send help.

But the connected car such as the Panamera S E-Hybrid that we test drove in Singapore last month can only work if there is a system operator to support it.

And the fantastic coincidence is that there is a company in Malaysia and Singapore that supports the connected car.

The CSE Group, founded in 1985, started off in the aftermarket business with the Cobra brand vehicle alarm system and graduated to became a Tier 1 OEM supplier to most of the automotive makers for security systems. Later, it expanded its business to parking aids, in-car entertainment and automotive electronic systems.

It scored its first Tier 1 customers in 1987 when UMW Toyota Motor and Kah Motor Honda came on board.

In 2002, CSE cemented its strategic entry into the telematics industry as the franchise telematics service provider of Cobra Telematics, a Vodafone company, in Asean.

Cobra Telematics is the UBI provider for Generali Europe. CSE has since been the market leader for telematics vehicle security and fleet management solutions.

CSE is also the Asian joint venture technology partner of Meta System Italy. Meta System has been an OEM supplier for 40 years to BMW, Mini, Mercedes, Rolls Royce, Ferrari, Fiat, Chrysler, Volkswagen and General Motors.

So the question now is, with a Malaysian company being the first in Asean to have such a deep integration into the connected car telematics system, which insurer will be the first to start offering usage-based insurance?

How fast will Malaysian motorists subscribe to UBI?

What about a smart partnership between a car maker and a panel of insurance companies to offer connected car and UBI? We understand that there is already at least one CKD car in the RM100,000 price bracket with telemetry as a standard equipment to enable it to be a connected car.

Motorists who subscribe for UBI can also opt for a range of other value added services — from simple driver card security and stolen vehicle recovery to advanced fleet management solutions for the fleet business.

It’s something that we’re going to explore further and we?ll be writing more about the exciting possibilities in store.

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