Sunday, November 6, 2016

Motor Insurance Policy 101

I REFER to the letter “Baffled by insurance coverage rule” by More Than Frustrated ( The Star, Aug 20).
Having worked in the insurance industry for more than 40 years, I would like to respond to some of the writer’s comments.
While he has experienced a lot of frustration, which is usual for the man in the street, a lot concerns ignorance about insurance.
Generally, the poor perception of insurance – either people do not want to know, assume things from their own perspective, do not want to read the policy terms and conditions or are totally ignorant of laws relating to insurance – is probably the crux of the matter.
Firstly, there are insurance laws and principles. A lot of people do not consider wear and tear as their own to bear. The legal principle of indemnity states that insurers will put the insured in the same position as he was immediately before his loss. If one’s vehicle is 10 years old, wear and tear would have taken its toll whether you like it or not. Therefore, if there is a loss, since the workshops cannot readily source and give you a 10-yearold part, a new part will be the next best choice. But, relying on the principle of indemnity, the insured benefits from this new part and so he has to pay for the betterment aspect. Note that betterment is only applied to the part that is replaced and not to the workmanship charges.
There are also high usage items – for example the tyres of your vehicle – and if they need to be replaced due to an accident, insurers will only pay for the unused portion. The principle is really the same. This is not what the insurers want to do but they have to follow established legal principles.
Policy holders should read the policy terms and conditions. If they don’t, they cannot assume things from their own perspective and feel that they are “victimised” and resort to the “Why should I pay since I have a comprehensive policy” syndrome.
On the betterment issue, I believe Bank Negara has approved the scale set forth in the insurance terms and conditions of the policy and this has been practised for many years. Also, it is good to know that insurers have agreed not to apply betterment for vehicles under five years.
If one is not agreeable with the terms and conditions of the policy, don’t take up a comprehensive policy. Take up a third party policy instead and bear the repairs or theft of your vehicle on your own.
The insurance policy carries various terms, conditions and exclusions and it is important that a policy holder reads this thoroughly. Terrorism is now a major issue worldwide, and it is specifically excluded by the policy. Even the act of a passenger opening the door and causing damage or injury to a third party motorcyclist is not covered by the policy but this can be extended under the policy on payment of an additional premium.
When they are affected by an accident for which terms are not covered by the standard policy, many consumers have held the view that all the perils should be covered as a standard cover. But on the other side, is it fair to other policyholders to have “everything” covered and force others to pay the premium? This issue is open to debate but there is no solution to suit everyone.
I would also like to say that consumers “feel the pinch” of the premiums they pay (some claiming that they are very expensive) but do not really know what the premiums are collected for.
If you buy a comprehensive insurance policy, you are not only paying for the damage/theft aspect, which insurers commonly refer to as Own Damage, but also for the injuries to third party and damage to third party property.
While over the years, many road safety initiatives have been carried out to reduce the high volume of road accidents and therefore the cost of motor claims, unfortunately our accident rate has not decreased.
For such injury claims, policyholders do not get to see the cost of injuries which insurers have to pay for the motor drivers’ negligence in causing death or bodily injuries to third parties.
These pay-outs from court cases go into the millions of ringgit. The loss ratios for such bodily injuries have, for many years, exceeded 100% of the premiums collected. And that is why insurers have been clamouring for increased premiums.
The motor rules will change in the years to come and the tariff will be removed by next year. In Western countries, motor insurance for bodily injury cover alone costs RM400-RM500 per vehicle and the premiums are increased yearly. All these are pegged to the claims costs, and if overall motor claims costs are not reduced, as consumers we will have to get used to paying higher premiums.
There are many other issues relating to insurance but it is not possible to cover all in this letter.
Nevertheless, knowledge of insurance is an important part of our lives and understanding your rights and obligations will help to clear many misconceptions.
I can only conclude that if you want to drive, you will need to learn the highway code and the practical aspects of driving, and passing your competency test. 
If you wish to purchase an insurance policy, don’t you agree that you have to read your contract?
Source – The Star (28 August 2015)
Published on AMI in year 2015