The Edge Weekly
5 Aug 2003
Insurers: World class or third class?

The insurance industry needs to become more efficient and service-oriented before the entry of more multinational insurers when the World Trade Organisation (WTO) opens the doors of this country.

How is the domestic non-life insurance sector shaping up? The results seem mixed, with some of the local players delivering a good set of figures on conservative business practices. There are others, however, that maintain shoddy practices and are getting away with it. There is, in particular, a large local car insurer that is notorious in the industry for its tardy response to claims. It has long been anticipated that this insurer will go the way of Mercantile, the failed insurer - for many years, the whole general insurance industry had to contribute money to compensate Mercantile's customers.

My brush with this local insurer is in sharp contrast to an experience with American Home Assurance Co, a related company of AIA, which is well known for its prompt response to claims. My wife, whose car is insured with the local insurer, was involved in a parking accident recently. As the mechanic at the workshop surveyed the damage, we told him who our insurer was. And he replied, "No, thanks." He said he would handle the repairs only if we forked out the money ourselves because payment from the insurer would take too long.

We had to bear the cost of the repairs. We could have applied to the local insurer under the comprehensive policy but that would have delayed the repair work as nothing can be done until the insurer has sent his adjuster to survey the damage. We opted not to wait. After that experience, I told my wife to switch to another insurer.

But that was not the last time we tangled with the said local insurer. Last week, a lorry knocked into the back of my wife's car. We were fortunate that my wife had changed her insurer - her car is now insured with American Home. But guess which company the lorry was insured with - none other than the local insurer.

We were quite relieved that regulations had forced some improvement in services. Previously, you lost your no-claim-bonus, or NCB, if you made a claim against your insurer even if you were not at fault in the accident. Now, you can claim on the insurance without losing your NCB. That seems fair. You should not lose your NCB if you are the injured party, not the offender, in the accident. Obviously, we prefer to claim on our comprehensive policy with American Home than that of the local insurer. A mechanic we spoke to made it clear that this was the only workable option.

American Home would send its adjuster within a couple of days whereas the local insurer would take two weeks. The latter's excuse is that being a large company, it is difficult for it to cope with its customer base. However, given the scale of its business and the correspondingly large revenue it collects, one would expect it to have a sufficient number of adjusters to attend to customers.

Insurers complain that they have to be wary of their own adjusters. Some insurers suspect that their adjusters conspire with the workshops to exaggerate the extent of damage to jack up the costs. This is something for the insurers to control; consumers should not suffer for it.

According to the mechanic, if the ill-famed local insurer is involved, he can't start work even after the adjuster has prepared his report. He needs the head office to confirm the approved amount of claims. "They usually slash the adjuster's estimate," the mechanic said.

It is different with American Home. The mechanic can start repairs as soon as he gets the adjuster's report. "The approved amount from the HQ won't be very different from the adjuster's estimate," he remarked. Perhaps, American Home has smoothed out the work of its adjusters. The local insurer's service gets even worse. If your car is stolen, it could take eight months or more to be paid the insured sum. "They will wait to see if the police can recover your stolen car," said the mechanic.

American Home, on the other hand, pays the insured sum in a theft case within two months, he added. This is the normal credit period for trading companies. American Home knows you'll need the money to buy another car, the mechanic said. If the stolen car is found after the insured sum has been paid out, the insurer recovers the sum by selling the car. An official of American Home once told a friend of mine that the company maintains good service because the best advertisement it gets is through word of mouth of satisfied customers.

The local insurer's unsatisfactory conduct seems to precede it. Even the police are aware of its tardiness. When my wife and I made the police report, the sergeant commented that we would have a difficult time getting paid by the insurer.

It goes without saying that this insurer will lose market share over time as the word gets round. For many years, the company was a panel insurer for a number of the large car assemblers. Possibly as a result of complaints from customers, it has been dropped from some of these panels. I have wondered how this local insurer has managed to prosper. It should have gone the way of Mercantile by now, especially with a negative claims ratio in the industry. The industry experience is that for every RM1 of premium collected, more than RM1 of claims are eventually paid out. I think this local insurer is able to stay in the picture because many of its customers do not file claims with it due to the delays it causes.

A friend has suggested that we report the insurer's sub-standard service to the central bank. The authorities may find this of interest because the insurer is causing an erosion of confidence in the industry. I think we will make that report.