The ins and outs of motor detariffication in Malaysia – Are you prepared?

Updated 18 Jul 2017, 03:44 PM – By Caitlyn Ng


‘Detariffing’ is, simply put, the act of removing all the regulations on pricing in a particular industry that was created by a regulatory body. In this case, we’re going to be looking at the motor industry and how the government has been taking steps to liberalise the motor insurance premium.

What’s going on?

For the past 30 years, Malaysia’s motor insurance premium has been standardised according to a tariff structure and monitored by Bank Negara Malaysia (BNM). With motor detariffication, each company in the market will be able to set their own prices for the various insurance policies offered.

This means that there is now a risk-based approach that determines the calculation for motor insurance premium – the higher the risk of a driver getting into an accident, the higher the insurance price set.

By now, we’re sure that you must be wondering what’s going to happen to your current insurance, and what will happen after that. We’re here to tackle some of those pressing questions floating through your head.

When will it be implemented?

Back in March 2016, it was announced by BNM that there will be a phased liberalisation of the Motor and Fire Tariffs before it becomes fully liberalised. This is to allow for Malaysian consumers and the industry itself to adjust to the new operating environment.

From July 2016, insurance companies started to introduce new rates that are non-tariff, as well as new products to the consumers at market rates.A few products were still be made available to the public though, namely the Motor Third Party, Motor Comprehensive as well as Motor Third Party Fire and Theft.

Come July 2017, the insurance prices will no longer be following the tariff structure, as the premium rates for Motor Comprehensive and Motor Third Party Fire and Theft products will be liberalised. So brace yourself, that’s in a few weeks' time!

How does the calculation go?

First off, you’d need to know what some of the factors that would affect the calculations are. Today, motor insurance can be determined through two key factors:

1) The value of the vehicle (known as sum insured)
2) The size / power of the engine (measured in cc)

There are other factors which will be taken into consideration as well when it comes to the premium’s calculation:

The ins and outs of motor detariffication in Malaysia – Are you prepared?

Notice how all of the factors concern only the vehicle? Well now there’s a whole new factor coming into play, and it’s a crucial one: the driver! The new calculation will be as below:

The ins and outs of motor detariffication in Malaysia – Are you prepared?

Motor detariffication coming into effect will see even more risk factors for insurance companies to consider. Some of these include:

The ins and outs of motor detariffication in Malaysia – Are you prepared?

Since these companies now have the liberty to create their own personalised packages according to the driver, would they also include unique add-ons to entice people to sign up with them? Check out this insider’s scoop on the top five most compelling offerings that may come into play.

Now, if you're wondering about this mysterious insider and how they get such useful information, meet Qompanion! They are calling themselves the ‘Insurance Qompanion’, a brand designed to be a knowledgeable friend on the subject of insurances. With a name that sounds this approachable, you’d be right for thinking that their website would be a breeze to use. Apart from comparison pages, they also have helpful stories with easy-to-digest nuggets of information.

*Note: This list is by no means the full one, since the risk factors may differ according to the guidelines (how strict or otherwise) set up by one insurer over the other.

Why is a motor detariffication needed?

We have come to the doubt that is probably on everyone’s mind, which is usually the case when there are new major changes implemented. Good news is that this one can be easily pacified.

The short answer as to why the detariffication is needed is because it’s a fair system for all drivers. Motor accidents occur due to the behaviour of a driver, because one party was reckless or careless. When the motor insurance premiums were regulated, it meant that everyone paid the same price regardless of the situation.

Now, the more careful drivers will be able to enjoy a cheaper insurance premium, whereas the riskier drivers will have to fork out more for their insurance premium due to the obvious: the chances of them getting into an accident is higher.

Pros and cons of the new system

There are many (both insurers and customers) who will agree that this new move is a welcomed one. For insurers, they will be able to price the insurance plans accordingly, based on whether it is a good or not-so-good motor risk. They will not be bound to follow a predetermined table of rates.

For customers, the good and safe drivers will be able to receive lower premiums instead of being grouped together with the rest of the drivers in Malaysia, some of whom may be known bad risks.

However, there will always be two sides of the coin to look at. The detariffication of the system may cause unhealthy competition to arise between insurance companies as they begin a price war. Some of them may be inclined to reduce their prices so as to attract more customers. While this may serve to benefit the customers, it may cause the smaller companies with fewer resources and capabilities to face insolvency as they struggle to compete and survive.

Can I reduce the amount I need to pay?

Since we have covered all the basics together, we are going to conclude this article with some tips on how you would be able to lower your motor insurance premium under the new system.

The ins and outs of motor detariffication in Malaysia – Are you prepared?

1) Shop around for the best deal

With detariffication taking effect, each insurance company would have comprehensive plans for each driver that walks into their office. You would need to shop around the market for the pricings and compare them in order to determine which product is the value for money.

However, take note that sometimes the cheapest plan may not be the best one for you, so be diligent in your research. You’d be able to compare your options using this really helpful comparison tool, where various car insurance products are kept as up-to-date as possible, especially after the detariffication has taken effect.

2) Secure your vehicle

This goes without saying – making sure that your vehicle’s auto locks and alarms are working is the basic step to deterring potential carjackers. Installing a dashboard camera and parking your vehicle in a safe and well-lit location are just some of the extra steps that you can take to reduce the risk of theft or damages.

3) Check out the premium rate

If you’re eyeing that high-performance car to zoom around in, you might want to think again before signing the paperwork. These are the types of cars that will earn you a high premium to fork out for. So you would need to make sure how much extra you’d need to pay for the car you’re thinking of buying.

4) Drive with care

Finally, this point summarises the essence of the detariffication system: safe driving habits on the road will ensure you do not make any claims from your insurer, thus keeping your premium rate low.

To conclude

All in all, now that you know the basics of this new system, don't say that you're caught off-guard with your (obviously different) motor insurance premium price!