Introduction to insurance in Malaysia

I never understood the insurance mechanism until I met with a car accident in Nov/Dec 2015. Even though I had sat for the insurance exam and became an insurance agent I never truly understood how insurance works or rather what it has evolved into today. That accident gave a good lesson how the insurance system works today.

What I did find out while I was an insurance agent was that my insurance supervisor was registering my clients under his account so he was making the all money. I do not know if this is how the insurance industry works in the rest of the world but I assume all kinds of liars, cheats and fraudsters can become insurance agents in Malaysia. It is totally up to you how you scam your clients into making premium payments.

My car accident

It was a rainy night and I was crossing the Jalan 222 traffic lights going across from Petaling Jaya Old Town towards Petaling Jaya Section 14. The crossing was a three lane road and I was in the center lane. The car on my left was a white coloured Kancil. There are small commercial and factories operations on the left and many cars were parked on the left lane outside the factories. So as I drove further the car on the left swerves into my lane as there are cars parked infront of him. I slam the brakes so as not to hit him. Unfortunately, in the heavy rain my car skids to the right and knocks the car on my right. There was a slight dent on the left side front door of the car on the right.

To cut the long story short both of us, the driver on the right and me made a police report that night. The Kancil driver fled the scene.

The dent is shown in the above picture.

The driver of the the other car wanted to take the car to the Japanese Corporation's service center to have it repaired. I had asked her to let my repair shop mechanic to do the work as he would probably charge about RM700 (USD$164.50). Unfortunately, she had insisted that as her car was about 4 years old she had to get it repaired at the service center.

She brought the car into the service center a few days later and she informed me that if I paid cash the repair bill would be RM2000 (USD$478.50) and if I claimed from my insurance the service center would quote the repair as RM3200 (USD$765). That is a 60% extra charge for paying with insurance. What a huge difference between a cash payment and an insurance payment.

Being tight for cash, I called up my motor insurance agent and asked him what would be my premium next year if I made the claim through my insurance company. I had been paying every year a premium of about RM1000 (USD$239) for the last 7 years which means I had paid my insurance company about RM7000 (USD$1674) over the last 7 years.

Do you know what the insurance company told me? They said that if I made the claim through the insurance company my premium for the next year would go up to RM2450 (USD$586). This was more than cash payment repair of the car. Shocking wasn't it.

I would lose my no claim bonus and for the next 5 years I would end up paying about RM2450 (USD$586) every year. This means that over the next 5 years I would have paid more than RM12,250 (USD$2930) for a car repair that would have costed RM3200 paid by the insurance company. Without the accident I would have only paid about RM5000 (USD$1196) over 5 years. That is really bad and to me it looks like a insurance scam. They are going all out to grab as much money as they can. What can you do? Nothing, as car insurance is compulsory.

I had asked the service center how they came about such pricing for the repair. They told me that the labour charges for the repair would be RM350 (USD$84) if I paid cash. If I claimed through insurance then the labour charges would be around RM1000 (USD$240). Shocking wasn't it. I assume that the body panel would be priced differently if I claimed insurance.

The pricing is shocking. All they were going to do was 'unplug' the dented body panel and 'plug back in' a new one. How many minutes does that take to do? Minimum wage in Malaysia is RM900 (USD$215) per month. Let us assume the technician who was repairing the car had a better salary of RM2000 (USD$478) per month. RM2000 (USD$478) divided by 24 working days is RM83 (USD$20) per day. This would be RM10.41 (USD$2.50) per hour. I think the job would have taken 10 minutes as its just unplugging and plugging back the body panel and there is no knocking back the sheet metal and repainting the body work. Let us say they needed one hour to do this work so the labour cost would have been about RM10 (USD$2.50). So how were they claiming between RM350 (USD$83.70) to RM1000 (USD$239) as the labour charges?

The prices jump up like crazy when they see payments to be made through insurance companies. It is happening everywhere in Malaysia. Look at the private hospitals, they love to see your insurance cards so that they can make outrages charges for testing and treatment. Private hospitals are charging an exorbitant amounts for treatment because many doctors want to drive a Ferrari and live in a lavish luxury bungalow. They put you under a battery of tests. The more tests they put you under the more they can charge.

Insurance companies never question the charges, they just pay up. Eventually, the patients end up with higher premiums. Nobody is checking the car repairs and the hospitals. Anybody can charge whatever they like and it is slowly becoming like a lottery ticket for hospitals and car repairers - windfalls every day. What can you do - nothing?

The situation is so bad in Malaysia that the public hospitals are packed with patients who cannot afford the private hospitals and there is no parking space in public hospitals. Patients have to park illegally. Some of the private hospitals are like 5 or 6 star hotels with a surgeon at your bedside.

I do not know if this overpricing could be mathematically modeled but without funding I cannot even check if it is possible because I am looking at an empty rice bowl every morning.

Someone has to put a stop to overpriced service.

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