Fitch: Malaysian auto insurance hike is not a game changer

by **Cals** Fri 14 Feb 2014, 17:09

Business & Markets 2014

Written by Surin Murugiah of theedgemalaysia.com

Friday, 14 February 2014 15:40

KUALA LUMPUR (Feb 14): Malaysia's hike in the tariff rates on motor insurance provides a small break to providers, but is not a game changer for them, says Fitch Ratings.

In a statement Friday, the international rating agency said the tariff increase was yet another step toward full deregulation by 2016, but it was too small by itself to provide a complete turnaround in profitability for motor insurance.

It said that motor insurance profitability remained depressed in Malaysia, explaining that increasing accident rates, a higher amount of bodily injury claims, rising medical costs, and fraudulent claims have consistently undermined the loss ratio of the third-party bodily injury and death (TPBID) business in the last few years.

Fitch said tariff increases were helpful but had much ground to cover.

“The regulator has undertaken efforts since 2012 to balance insurance buyers' affordability, with profitable underwriting performance for the insurers.

“As a result, incremental tariff increases should lower the loss ratio of TPBID activity to an estimated 230% over the near term, from nearly 300% in 2011.

“But they have much further to go before lowering "combined ratios" (an aggregation of expense ratio and incurred loss ratio) to around 100% - which is the approximate break-even point for TPBID activity,” it said.

Fitch expects improvements in the motor insurance business to be much more pronounced once the sector is fully deregulated in 2016.

“Until such time, the sector should remain unprofitable for many Malaysian general insurers, and the underwriting losses from the motor business are typically cross-subsidised from other more profitable non-motor business lines,” it said.

Fitch said poor claim results from TPBID would continue to constrain insurers in improving their overall motor portfolio margin, although TPBID insurance only represented about 11% of total motor market premiums.

It said the underwriting margin of non-compulsory motor insurance remained generally healthy, due to a favourable claim ratio and stable commission structure.

The combined ratio for total motor business was 105% in 1H13 and 103% in 2012, it said.

The General Insurance Association of Malaysia had announced increases in motor insurance premiums, effective from 15 February.

Under this third round of rate adjustment of the New Motor Cover Framework, the third-party cover for motorcycles of 110cc will register a rate increase of around RM1-3.50 per year over the next four years; RM6-34 per year over the same period for private cars of 1400cc, and around 10 sen per passenger per trip for express buses.

These measures accompany the rationalisation of other subsidies from September last year - including fuel and sugar prices, and electricity tariffs.