Competition intensifies for auto and fire insurance

The impending implementation of Phase 2 of detarification / liberalization of the insurance sector will likely lead to additional competitive pressure on the pricing of automotive and fire products for general ITOs.

KUCHING: The impending implementation of phase 2 of detarification / liberalization of the insurance sector is expected to result in additional competitive pressure on the pricing of automotive and fire products for general and takaful (ITO) insurance operators.

The second phase of liberalization is expected to begin once the Covid-19 pandemic has been contained with most of the population fully vaccinated, estimates AmInvestment Bank Bhd (AmInvestment Bank).

“The resumption of premium growth and profitability in the insurance and takaful industry is strongly correlated with economic growth. The growth of ITO premiums is expected to improve once collective immunity to Covid-19 through vaccinations is achieved, ”he said yesterday in his review of the sector.

This comes as in the second half of 2021 (2H21), the recovery in ITO premium growth remained uneven while the challenges of premium growth in 3Q21 remained.

The recovery will be delayed but not derailed with the implementation of the Reinforced Movement Control Order (EMCO) where stricter measures have been reintroduced in some states, including those in the central region with high cases of Covid- 19, he said.

“We see challenges in the growth of general ITO premiums in 3Q21 due to the temporary impacts of foreclosure restrictions which will impact car sales,” added AmInvestment Bank.

In addition, weaker sentiment among potential short-term home buyers is likely to affect property sales. Automotive and fire are the most important segments of the overall ITO portfolio.

“Meanwhile, for life ITOs, the ongoing pandemic will also see challenges in sales of life insurance products in the near future.

“The suspension of face-to-face meetings is expected to result in slower sales in bancassurance and agency distribution channels.”

Looking ahead, the research house said easing mobility restrictions for fully vaccinated people and reopening more economic sectors and higher operating capacity in tandem with the growing percentage of vaccinated employees in Manufacturing, construction, mining and quarrying sectors under various phases of the National Stimulus Plan (PNR) starting this week could see higher premiums for ITOs in Q4.

AmInvestment Bank further expects Lifetime ITOs to improve their digital capabilities in the future, which will include more straightforward policy processing.

“The digital enhancements underway will not only improve customer engagement, but also allow agents to more effectively manage their transactions with ITOs.

“The underwriting profits for ITOs remain profitable despite the difficult environment. In 2H21, general ITO underwriting profits are expected to remain positive despite the revenue challenges in 3Q21.

“This is due to the expectation that claims, especially from the engine, will remain low in the short term with less traffic on the roads due to the movement control order. Travel restrictions will only be relaxed for fully vaccinated persons. “

As with life ITOs, commercial operations, excluding those impacted by interest rate movements, should remain profitable in 2H21. AmInvestment Bank expects medical claims to remain low for now as policyholders are unlikely to seek hospital treatment unless it is necessary.

“The second half of the year could see Life ITOs prudently setting aside additional provisions for potential claims on deceased policyholders. This will be based on the updated list of deceased persons from the National Registration Service.

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