6.2 Motor Pricing, Extensions and Commercial Uses

Study Focus

Risk-based pricing considers the insurer’s relevant vehicle and driver factors. Special perils, windscreen and passenger-liability extensions address different exposures.

Phased Motor Tariff Liberalisation in Malaysia

Historically, motor insurance pricing in Malaysia operated under a rigid, statutory framework known as the Motor Tariff, established in the 1970s and administered by the General Insurance Association of Malaysia (Persatuan Insurans Am Malaysia - PIAM) under the supervisory authority of Bank Negara Malaysia (BNM).

Limitations of the Fixed Tariff System

Under the traditional Motor Tariff, premiums were calculated using a mechanical, two-variable formula:

1. Engine Cubic Capacity (Engine CC): The size and displacement of the engine.
2. Sum Insured / Market Value: The agreed or estimated value of the insured vehicle.

This pricing system applied uniform rates across geographic regions (Peninsular Malaysia versus Sabah and Sarawak), ignoring individual risk differentials. Consequently, cautious, experienced drivers with clean records paid the exact same premium as reckless, high-risk drivers operating identical vehicle models. This generated structural cross-subsidies, suppressed product innovation, and produced persistent underwriting deficits in certain vehicle classes.

The Move toward Risk-Based Pricing

To promote fairness, market sustainability, and technical underwriting excellence, Bank Negara Malaysia launched the Phased Liberalisation of the Motor Tariff (commonly referred to as de-tariffication):

• Phase 1 (July 2016): Insurers were permitted to introduce new, differentiated add-on products and optional endorsements at market-determined pricing, while base tariff rates remained fixed.
• Phase 2 (July 2017 onward): Premium pricing for Comprehensive and Third Party Fire & Theft (TPFT) policies was liberalised within regulatory pricing corridors. Insurers were empowered to assess individual risk profiles and determine actuarially sound rates.
• Third Party Cover: Pricing for basic Third Party policies remained subject to regulatory tariff oversight to ensure continued access to affordable mandatory coverage for lower-income vehicle owners.

Comparison: Tariff Rating vs. Liberalised Risk-Based Rating

Under liberalisation, safe drivers with good driving habits and well-equipped vehicles benefit from lower premiums, while higher-risk profiles pay premiums that accurately reflect their actuarial hazard.

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Common Optional Endorsements and Policy Extensions

Standard motor policies contain explicit boundaries. Policyholders desiring broader protection can purchase specialized endorsements for an additional premium.

1. Windscreen Damage (Endorsement 89)

A standard Comprehensive policy covers windscreen replacement, but doing so treats the repair as an own-damage claim, causing the policyholder to forfeit their accrued No Claim Discount (NCD). By attaching Endorsement 89, the insured can repair or replace broken, cracked, or shattered windscreens, side windows, or rear glass (including solar tint films) without affecting their accumulated NCD. The sum insured under this endorsement must reflect the realistic market replacement cost of the glass and tinting.

2. Legal Liability to Passengers (LLP - Endorsement 100)

Because the Road Transport Act 1987 (Sections 90 and 91) does not require cover for passengers in private cars, standard private car policies exclude legal liability for death or bodily injury caused to passengers riding in the insured vehicle. Endorsement 100 removes this exclusion, indemnifying the insured driver against legal liability to passengers if the driver's negligent operation causes passenger injury or death. Notably, Endorsement 100 is legally compulsory when driving a Malaysian-registered motor vehicle into the Republic of Singapore, as Singaporean law mandates passenger liability coverage for all vehicles using its roads.

3. Legal Liability of Passengers for Negligence (LLOP - Endorsement 72)

While Endorsement 100 covers the driver's negligence toward passengers, Endorsement 72 covers the insured against legal liability arising from the negligent actions of passengers traveling in the vehicle. A classic example occurs when a passenger negligently swings open a car door into the path of an oncoming motorcyclist or cyclist. Endorsement 72 indemnifies the policyholder against third-party claims arising from such passenger conduct.

4. Special Perils (Endorsement 57)

Standard Comprehensive policies expressly exclude damage resulting from natural catastrophes. In tropical Malaysia, where seasonal monsoon downpours frequently trigger flash floods and landslides, Endorsement 57 is an essential add-on. It extends coverage to physical loss or damage caused by:

• Flood, typhoon, hurricane, storm, and tempest.
• Volcanic eruption, earthquake, and tsunami.
• Landslide, landslip, and ground subsidence.

5. Strike, Riot & Civil Commotion (SRCC)

Damage inflicted on a vehicle during civil disturbances, labour strikes, industrial lockouts, or public riots is excluded under standard policy wordings. Attaching the SRCC endorsement indemnifies the vehicle owner against malicious damage or physical destruction occurring during such organized social upheavals.

6. Compensation for Assessed Repair Time (CART)

When a damaged vehicle enters an approved workshop for collision repairs, the owner loses mobility for days or weeks. CART provides a daily financial allowance (e.g., RM 50, RM 100, or RM 200 per day) for the number of repair days assessed by an independent insurance adjuster, compensating the policyholder for alternative transport or car rental costs regardless of vehicle downtime disputes.

Commercial Vehicles, Motor Trade and E-Hailing

Classify the vehicle and its actual use before selecting cover. A private car used for social, domestic and pleasure purposes is different from a lorry carrying goods, a bus carrying paying passengers, or a dealer's vehicle being driven on a demonstration. The proposal, certificate and limitations as to use must agree with the real activity. Declaring a vehicle simply as a private car does not establish cover for every commercial use.

Commercial vehicle insurance considers the vehicle type, laden capacity, goods carried, operating territory and use for own business or hire and reward. Motor damage and third-party liability are distinct from cover for the cargo. Damage to goods in a delivery van is assessed under goods-in-transit cover rather than automatically paid by the motor policy. Passenger liability also needs attention: compulsory requirements and extensions depend on the class and use, including public-service and paying-passenger risks.

Motor trade insurance addresses a dealer's or repairer's business exposure. A road-risks policy can cover authorised driving connected with the trade, subject to driver and vehicle restrictions; an internal-risks policy addresses specified damage or liability at the trade premises. Ask whose vehicles are covered, who may drive them, what test drives are permitted and whether vehicles held in custody are insured. It is not unrestricted private-car cover for everyone employed by the workshop.

E-hailing involves carrying paying passengers through an app. The owner must disclose this use and obtain suitable e-hailing cover or an authorised extension. Check the platform or policy's operating-period definition, own damage, third-party liability, passenger liability and personal accident components. For an exam scenario, identify the mismatch between declared use and actual use before discussing a claim. The relevant policy and legal requirements determine the result; an ordinary private-car certificate alone does not resolve it.