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Solving the insurance headache

IN 2005, there were roughly 328,000 motor accidents with over 6,000 fatalities in Malaysia, out of over 15 million registered vehicles. In all these cases, injured accident victims often looked to drivers’ insurers to pay their hospitalisation costs and damages for pain and suffering. Under Malaysian law, vehicle owners must obtain coverage for injuries caused to third parties before their road tax can be renewed.

Given the large number of drivers, vehicles and accidents, any changes to third-party motor insurance would therefore impact a large number of Malaysians. A proposed revamp headed by Bank Negara Malaysia (BNM) has come under attack by the Bar Council, amongst others, in relation to the proposed changes.

But, what changes are actually being made to the current scheme? And why are they being made in the first place? Why can’t we just stick to the status quo? And will the changes make it easier and fairer for Malaysians who are injured in road traffic accidents?

Information and misinformation

A close examination of media reports reveals that most of the “details” on the new scheme have actually come from unverifiable sources.

A 24 Mar 2010 report by theSun journalists R Nadeswaran and Terence Fernandez quoted “a source” who claimed that accident victims would only be able to claim up to RM100,000 under the new scheme. This seems ludicrous considering that claims can run up to millions, especially if an accident victim is paralysed or brain damaged, and requires round-the-clock care.

As BNM has refused to confirm or deny this claim, several media reports have emerged to rubbish the RM100,000 cap and allege that BNM is “in bed” with the insurance industry. But is it premature for the media to generate hype over information from an unnamed source? Where is this source from? Is he or she even part of BNM? Why can’t the source be named?

theSun report also quoted a source saying the scheme could possibly be run by a private company and could cost RM500 million.

Why new scheme?

Suffice to say, at this juncture, there is no verifiable information on what this new scheme is going to look like. Although, according to Prime Minister Datuk Seri Najib Razak in his 2010 budget speech in October 2009, the new scheme would be implemented by mid-2010. Given our government’s problematic track record for transparency and openness in formulating policy, it is unsurprising that three months to the deadline, we still have no clue what the changes are.

On 5 Apr 2010, however, after the public criticism, Najib said he would tell BNM to consider the people’s plight when formulating the scheme, and to consult all stakeholders. Strange, considering it was the government that proposed the new scheme in the first place. Instead of chastising his own policy makers, Najib would have done better to explain why we need the new scheme in the first place.

But since our prime minister has failed to enlighten us, I will cite some possible reasons for the proposed change.

Legal system

Making an insurance claim from your own insurer can be a tiresome process, what more when it involves claiming from another driver’s insurer, which may involve going to court to prove the driver’s negligence. Experiencing the Malaysian legal system can be trying, more so if you’re grievously injured and don’t have enough funds to sustain yourself through the process. Despite recent efforts, it is still an uncertain endeavour in the following ways:

Tun Zaki Azmi

  Time — court cases can take anywhere between two to 20 years (inclusive of appeals) to complete. Some plaintiffs are not healthy or wealthy enough to wait that long for compensation. Although the current chief justice has been pushing the courts to work faster, the backlog still exists. It is unclear whether this trend will continue after Tun Zaki Azmi‘s term ends in less than 18 months. 

  Liability — Success or failure for a plaintiff is very much dependant on the individuals involved in the case — the judge, lawyers and investigating police officers. The quality, integrity, thoroughness and competence of these individuals may vary greatly from case to case. Enough said.

  Damages — Two quadriplegic plaintiffs of the same age and salary could potentially be awarded damages that are extremely disparate. One could possibly receive RM300,000, the other RM3 million. There are no authoritative guidelines on awards in personal injury cases, unlike in countries like the UK. Judges here have wide discretionary powers when awarding amounts for items such as nursing care which could amount to millions.

 4  Costs — Even if a plaintiff wins, the costs awarded will probably be insufficient to cover the actual fees paid to the lawyers. This leaves the system open to contingency fees, where lawyers obtain a percentage of their clients’ damages although this is considered unethical.

hospital bed
Accident victims have enough to deal with if they have been injured

How do these uncertainties affect third-party insurance? Well, it’s certainly no picnic for the accident victim, who already has to deal with the fact that he or she has been injured or maimed. For the insurance companies, the uncertainty poses a huge challenge to their profit margins and pricing, considering they cannot accurately predict what the damages will be for any given case or any given year.

The insurance industry’s dilemma is worsened because the government imposes 30-year old tariffs on the insurance companies. Raising motor insurance prices however is as sensitive as raising petrol prices, given the number of people who own vehicles who are legally entitled to vote. But insurance companies say that they are paying out more than twice what they collect in third-party motor insurance premiums. Such a situation is extremely unattractive to businesses at a time when the government is desperately trying to encourage foreign investment and participation in our economy.

Big picture

Any new system that would make the claims process faster, cheaper, fairer and more certain would surely be welcomed by any consumer. Despite the Bar Council president’s statement that the current system is working fine, long-suffering plaintiffs and loss-making insurers may say otherwise.

The RM100,000 question is — will our government take the time to conduct proper consultations and produce a workable long-term solution? Or is the Barisan Nasional government merely going to make piecemeal changes, cross their fingers and pray that these would somehow please voters and also attract foreign investors? As long as decisions are made based on popularity rather than principle, whatever new scheme proposed will be doomed from the start.

Is Najib serious in tackling the
issues related to third-party
If Najib and his government are serious in tackling the issues related to third-party insurance, extensive consultations should take place with all stakeholders and sufficient time allocated to draw up a workable plan. And this process should be as transparent as possible so that the public does not feel this is yet another nice-sounding initiative that will never come to fruition. Rushing through a scheme to please big businesses, then having to retract it to please voters, ruffles everyone’s feathers and ultimately benefits no one. Consumers may expect low insurance prices. But if it is unsustainable and will end up with insurers pulling out of motor insurance or even out of Malaysia, then that has to be avoided.

But can Najib treat Malaysians like adults and explain things, at the risk of being unpopular? Or will he try to play “hero” and end up solving nothing? Only time will tell. favicon

Ding Jo-Ann thinks it’s high time the government started consulting its electorate.

Read previous Holding Court columns

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