Rising Motor Claims Fueling Shift to Risk-Based Insurance Pricing

Bank Negara Malaysia’s (BNM) phased liberalisation of motor tariffs could soon lead to fairer motor insurance pricing. Under this system, your driving record may directly affect how much you pay for coverage.

If you’re a careful driver with a clean record, you could enjoy lower premiums. But those with a history of accidents or poor driving behaviour might see their premiums go up.

According to the General Insurance Association of Malaysia (PIAM), motor insurance remains the largest sector in the country’s insurance market.

In 2023, Malaysians claimed an average of RM15.1 million a day from motor insurance. That’s about RM629,000 every hour - a sharp jump from RM13 million daily in 2022.

PIAM chief executive Chua Kim Soon said the rising number of vehicles on Malaysian roads is one of the reasons for the surge in claims. More cars mean a higher risk of accidents.

Another key factor is the increasing cost of repairs. Many modern cars now come with advanced features like sensors and cameras, which are expensive to fix or replace after a crash.

The average cost for Own Damage (OD) claims - which covers repairs from accidents under your own policy — went up from RM9,385 in 2022 to RM9,873 in the first half of 2024.

When it comes to premiums, private vehicle owners paid an average of RM741 in 2022, which rose to RM810 in 2023, and hit RM857 in the first half of 2024.

Even with these increases, PIAM reported that the total loss ratio - a measure of how much insurers pay out in claims compared to what they collect in premiums - stayed at healthy levels - 70.1% in 2022 and 67.8% in 2023.

However, the private vehicle segment recorded the highest loss ratios - 72.7% in 2022 and 70% in 2023.

Chua pointed out that both the number of claims and the severity - meaning the cost per claim are rising, especially with more imported and high-tech vehicles on Malaysian roads.

He explained that if claims and repair costs continue to rise, insurance premiums will have to adjust accordingly. Otherwise, insurers could end up paying out more than they earn.

On a more positive note, Chua said drivers who maintain a good record can expect better rates, as insurers are now allowed to tailor prices more accurately under BNM’s liberalisation framework.

Souirce: MalayMail