Since 1st July 2017, the motor insurance tariffs have been liberalised. Will this benefit consumers? It depends. Firstly, almost certainly markets benefit from liberalisation. When prices are regulated, there is no incentive to innovate, to target consumers and to take initiatives to provide value that would attract consumers. There is no incentive for service providers to differentiate their products, in relation to consumers, to attract them from other competitors. In theory at least, liberalisation promotes competition in the market and consumers should benefit through a greater range of product or services choices and better value for their hard-earned money. Will consumers then actually benefit? If after the liberalisation, the consumer continues with his old “package” because of “convenience”, and if prices do go up, complain to his friends and family that prices have gone up and maybe gets angry at the whole liberalisation regime, or on the other hand, if prices go down, feels elated that he has saved some money because of the liberalisation and says liberalisation is great; then the consumers have not benefitted from the liberalisation regime. But if on the other hand, when it is time to renew his motor insurance, the consumer, who now has a range of products and services being offered by various competing insurance companies, takes the time and the effort to understand the products and services and makes a conscious choice to get the best value for his money, than liberalisation would have benefitted him.

But this is difficult indeed. Beyond just understanding about third party and comprehensive coverage, the consumer may need to understand other terms such as named driver, special perils like floods coverage, legal liability of passengers, compensation for assessed repair time, car accessories coverage, road assistance coverage and other possible factors that provide value to the consumer. These values would certainly come at a price. Each consumer then has to make comparisons to make the best choice, in terms of value for money, for his particular needs. It is expected that websites comparing insurance value/price packages would crop up. Consumers may need to access these sites to make comparisons to get the best deal. Consumers also in a liberalised regime need to understand a new factor in tariff pricing. Risk. Insurance companies will now look at the risk factors of you as a driver. These would include age, years of driving experience, driving record, claims history, vehicle type and vehicle use. These factors will now be considered in pricing your insurance tariff. For example, a reckless driver with a bad driving record would certainly pay a higher premium than a driver with a “clean” record. Indeed, while liberalisation may be bring benefits to the market and consumer, there is one critical unintended effect. In moving from a regulated to a liberalised tariff environment, it effectively transfers the burden of responsibility on making choices from the agency regulating prices to the consumers in making their own choices for their own best benefit. This requires on the part of the consumer, time and effort in understanding the choices and making the best decision to optimise their needs. While Bank Negara will continue to monitor the pricing regime, insurance companies need to make the options available to consumers easy to understand as well transparent so that consumers can better understand the rationale for the pricing of the packages offered, to enable consumers to make effective choices. Most importantly, FOMCA hopes that more widespread awareness and education be undertaken to empower consumers to make those choices.

Dato’ Paul Selva Raj

Secretary General, FOMCA