Peak Re eyes opportunity to help Malaysian insurers manage regulatory change
Peak Re’s licence to establish a branch in Labuan, Malaysia, to write general insurance business in Malaysia has come “at just the right time”, Jasmine Miow, director of South Asia, SEA and MENA markets at Peak Re, told SIRC Today.
She said the country is undergoing a transitional period in its regulations, with a phased scrapping of tariffs and rigid premium structures of motor and property insurance markets underway that will allow insurers to charge premiums that match the risk behaviours of consumers.
This means Malaysian insurers will now be able to introduce risk-based pricing and strengthen their underwriting, risk selection and risk management processes in order to succeed in this new deregulated environment, Miow said.
“Insurers will have to strike the right balance between their top and bottom line objectives,” she said. “Reinsurance can support this process as detariffication will result in an increased volatility of insurers’ earnings and solvency position. As a reinsurer in Malaysia, Peak Re is looking forward to supporting its clients with proactive approach throughout this critical transition period.”
Peak Re received its licence from the Labuan Financial Services Authority in June 2017, which grants it closer proximity to the locally operating insurers in the Malaysian market, and aims to strengthen Peak Re’s access to business opportunities arising in the wider ASEAN (Association of Southeast Asian Nations) region.
Malaysia’s insurance regulator, Bank Negara Malaysia (BNM), began a phased liberalisation of motor and fire tariffs in July 2016, in order to end the practice of regulatory price setting in both lines of business.
In motor insurance, for example, Miow said the tariff regime has resulted in claims exceeding premiums by a wide margin. For every single ringgit (RM) paid in premiums, claims in third party bodily injuries amounted to RM 1.30 to RM 3.00, according to BNM.
Miow suggested the rate liberalisation aims to close this gap and gradually move tariffs towards a more appropriate level more in line with drivers’ individual risk profiles, reducing the current practice to cross-subsidise the tariff lines.
The first phase of liberalisation was from July 2016 to July 2017, and while rates were still fixed for existing products, insurers were allowed to introduce new products at market rates. From July 1, 2017, the motor tariffs were liberalised, meaning that insurers are able to charge premiums that correspond to the behaviour of consumers.
Prices for Motor Third Party are gradually adjusted upwards by the BNM, until the process of liberalisation will go through a final assessment to determine the readiness of consumers and industry for eventual full liberalisation.
Since July 1, Malaysia is currently in the second phase of liberalisation of motor and fire insurance tariffs, which involves the gradual adjustments of tariffs and emphasis on third party insurance products. Fire insurance will continue to be regulated under the tariff with gradual downward adjustments until a review is made in 2019.
In the final phase of liberalisation, BNM will evaluate the progress and impact of the phased liberalisation of the motor and fire tariffs to determine the overall readiness of consumers and the industry for further liberalisation.
Miow added that Peak Re is looking forward to supporting its clients with a proactive approach during this period.
“We are here to provide solvency relief products that enable cedants to meet tighter capital requirements and solvency position,” she said. “Peak Re is committed to establishing long-term partnerships and growing along with our cedants.
“We understand the importance of knowledge transfer and exchange and we are happy to support our partners on training and education in specialty areas with Peak Re’s expertise.”
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