Fuel price hike may hit motor insurance business

THE general insurance industry expects the recent fuel price hike and the anticipated higher inflation to affect the motor insurance business in the medium term.

With the dramatic increase in fuel price and prices of goods in general, the demand for new and used vehicles is likely to be affected, said the General Insurance Association of Malaysia (PIAM).

It said that the demand for large capacity vehicles, especially, will likely be depressed in view of concerns over fuel costs.

"These developments in addition to affecting vehicle sales will also affect motor insurance premium growth in the medium term as the consumers' vehicle purchase and replacement patterns change to cope with fuel costs," PIAM's executive director CF Lim told Business Times recently.

"If car prices are also impacted as expected, due to these changing patterns, then this will affect premium growth further as insured values of vehicles will also be depressed," he added.

In 2007, gross written motor insurance premiums reached RM4.67 billion, representing an increase of only 1.4 per cent over the previous year's.

Lim said expectations for further growth in the motor sector were fairly positive in the first half of 2008 especially with signs of a recovery in turnover of new vehicle sales following the wake of the National Automotive Policy (NAP) introduced in late 2005.

The country's largest motor insurer, Kurnia Insurans (M) Bhd, said that the increase in fuel prices will adversely impact almost all sectors of society, and the automotive sector will inevitably be affected.

"The increased cost of doing business will immediately impact all types of industries, and the insurance industry will be of no exception," said its managing director and chief executive officer Captain KH Chia.

With the increased cost cascading down to almost all goods and services, Chia said, it will be a big challenge for Kurnia to contain its management expense.

"It means that appropriate cost cutting measures may need to be undertaken to keep management expense under control so that we can continue to offer insurance protection to the public at an affordable premium."

He said there may be a slowdown in vehicle sales in the short term but believe it to be temporary as cars have become almost a necessity for Malaysians especially in the urban areas.

Allianz General Insurance (Malaysia) Bhd said the long-term effect on the insurance industry will depend on how much the current increase in fuel prices is factored into increased business costs.

It said that the rise in fuel prices will have far reaching effects on the cost of business.