Bank Negara Malaysia’s proposed scheme is detrimental to public interest

Press Release

Bank Negara Malaysia’s proposed scheme is detrimental to public interest

The Bar Council was invited to a dialogue with Bank Negara Malaysia (BNM) on 19 April 2010, wherein BNM presented its proposal to revamp the motor insurance scheme. While we welcome BNM’s initiative towards greater transparency, as reflected by its move to engage with various stakeholders, there is still a need for BNM to provide detailed information on the mechanics, funding and operation of the proposed scheme.

Two fundamental concerns remain – the RM2 million ceiling amount, and the establishment of a “Newco” to manage the scheme – with respect to which the Malaysian Bar’s views diverge from BNM’s proposed approach.

While the RM2 million overall cap per claim appears high, BNM intends to introduce separate ceiling amounts for specific heads (types) of damages. Consequently, this figure, by itself, is misleading, as claims for loss of earnings, general damages, and special damages such as nursing care, are likely to be subject to individual caps that are much lower. This is in stark contrast to the current fault-based common law system, where there are no limits, as the court decides on the quantum of damages.

A motor insurance scheme must provide adequate protection for everyone. Although BNM has stated that 90% of all claims are below RM2 million each, it is not sufficient for only the majority of claimants to be protected: the scheme must work for everyone, without exception.

Furthermore, the proposal to limit the quantum will affect not only third party coverage, but comprehensive insurance policies as well. As a result, road users will have to purchase additional insurance coverage, which is burdensome and impractical, and thus against the public interest. The scope of coverage must be reasonable and workable, and not merely basic. In addition, the suggestion that an aggrieved party must resort to pursuing a claim in court in order to recover more than the ceiling amount is regressive and detrimental.

Secondly, the establishment of a new company (“Newco”) to manage the scheme, with the Government as a majority shareholder, will further burden the public, as it is estimated that a fairly large amount of public funds will be required to set up the necessary mechanism and to underwrite any losses incurred by the Newco. The proposal to exclude the courts is not practicable, particularly given the cost involved in setting up a comparable system with adjudicators and officers nationwide to handle the approximately 40,000 cases per year.

The current tried-and-tested court system of adjudication functions well, especially with the recent improvements in the administration of justice. The creation of a parallel system is thus duplicative, inefficient and impractical.

As there has been no increase in tariffs since 1978, the Malaysian Bar urges BNM to consider a reasonable increase in insurance premiums rather than imposing ceiling amounts on liability or proposing a scheme that is so basic in nature that it negates the principles of indemnity and assurance.

The function and discretion of the Courts in deciding on the issues of liability or quantum must be maintained. The Malaysian Bar reiterates that, rather than introducing a new scheme that favours the insurance industry, BNM should focus on increasing the effectiveness and efficiency of the existing system.

We call on BNM to establish a cross-industry working committee to review the public feedback and propose a holistic solution, taking into consideration the viability and sustainability of the motor insurance scheme, and with public interest as the paramount consideration.

Ragunath Kesavan
President
Malaysian Bar

21 April 2010