Motor insurance policies are virtually minefieldsPOSTED BY CBT Team ON 29 September 2014
Open fields look serene but those planted with landmines would blow up when the unwary steps on one.
Likewise, policyholders may only be notified after an accident that their motor cover had been rescinded.
This is more so for those placed under the Malaysian Motor Insurance Pool (MMIP), which was set up in 1992 to take over the High Risk Motor Insurance Pool.
In the 1970s, buses were considered high risks and granted only the basic “Act Cover” which covers third party injuries but not property damage.
The archaic “Motor Tariff” in use since that period is still in force today. Hopefully, the detariffication of the insurance industry by 2016 would promote competition, improve services and lower premiums.
For example, metered taxis ply the streets throughout the day and often late into the night. Their accident risks are much higher than limousine taxis.
Yet the insurance premium for limousines taxi is RM102.50 per thousand ringgit insured compared to RM69.80 for metered taxis.
The majority of “Hire & Drive” vehicles are rented to corporate customers for use by senior executives and expatriates, mainly for work commuting.
They are more careful than the average motorists but the premium for “Hire & Drive” is 4.7 times more than private cars, at RM122.10 versus RM26 per thousand ringgit insured.
As such, car rental companies place their fleet under third party insurance and the premiums saved are more than sufficient to cover all losses and damage.
Banks providing loans to car rental companies accept third party insurance but those with preconceived notion that “Hire & Drive” vehicles are high risk would decline financing.
Similarly, insurance companies ignorant of car rental or bus companies categorise all of them as high risk without bothering to find out the true picture.
While members of the Car Rental Association of Malaysia are getting motor covers directly from insurance companies, many others including bus operators were rejected and had to turn to the MMIP.
As such, these transport operators were lumped as high risk and had lopsided terms and conditions imposed on them.
Thirty-three insurance companies are mandated by Bank Negara to share the losses incurred by MMIP, amounting to over RM100m annually.
Although the motor tariff is regulated, insurers had been charging more by arbitrarily loading the premiums and reducing payments by adding excess clauses.
For example, third-party premium for stage buses is raised to RM2,774 when loading is 110%.
This is done upfront and accepted by the insured, albeit grudgingly, as insurance is needed to renew road tax and keep the bus running, otherwise commuters would be stranded.
As the onus is on the insured to read the fine print of the policy, insurers chose to remain silent. It would also serve their interest better than alerting the insured of their obligations.
Letting policy-holders walk through minefields would allow insurance companies more opportunities to repudiate covers and reject claims.
For example, there is no cover if drivers are found without valid driving or vocational licences, or if the vehicle is driven under the influence of drugs or alcohol. This is a given.
But the policy is null and void should the vehicle’s usage is not in full compliance with all conditions attached to the operating licence.
It is doubtful whether regulators and operators are aware that failing to comply with just one condition can invalidate the insurance.
Also, if the vehicle is found not in roadworthy condition, even if certified roadworthy by Puspakom, the insured shall not be entitled to any indemnity.
Likewise, there is no indemnity if the hazard light was not switched on after an accident or the driver abandons the vehicle to flee from an angry mob.
Perhaps the most ridiculous of them all is limiting the age of bus drivers by withdrawing cover for those above 65, regardless of the valid public service vehicle licence issued by the Road Transport Department.
But an excess of RM1,000 applies for private car drivers above 65. MMIP should be consistent with its own terms and conditions by imposing an excess for bus drivers instead of withdrawing cover altogether.
Even for accidents caused by speeding, there is an excess of RM3,000, and for overloading of goods or passengers, the insured is required to bear a proportion of the loss or claim.
It is natural for honest drivers to admit fault after an accident but insurance companies would pounce upon such gentlemanly acts to repudiate cover.
Clearly, intervention by Bank Negara is necessary so that insurers assume risks after collecting the premiums, and not pass them to unsuspecting policyholders.
To do so would make a mockery of the “Act Cover” which was first enacted in 1958 under the Road Traffic Ordinance to safeguard public interest.