Motor Takaful - PowerPoint Presentation

Slide1

Motor Takaful:A promising Oasis or a Treacherous Mirage? A Malaysian Case Study with special focus on Claims Management

KHAERUDDIN SUDHARMIN MBA (Hull), LS7037 (Malaysia), Fellow PWI (UK) Managing Director & CEO MOTORDATA RESEARCH CONSORTIUM Malaysia in partnership with THATCHAM UKSlide2

Prologue slides 2-6Claims Management overview slides 7-21MRC case study

slides 22-34Epilogue slides 35-37AgendaSlide3

Takaful insurance principles: a protection plan based on Syariah (Islamic laws) principles where a sum of money is contributed to a common takaful fund in the form of participative contribution (tabarru’). A contract (aqad

) is undertaken to become one of the contributors by agreeing to mutually help each contributor, should any of the contributors suffer a defined loss.What is Motor Takaful?Slide4

One unique feature of a takaful plan is the sharing of surplus of the fund between contributors and the takaful operator based on a pre-agreed ratioThe surplus is arrived at after deducting expenses such as claims, re-takaful, technical reserves, and management expensesContributors will be entitled to this surplus if they have made no claim during the period of

takafulWhat is Motor Takaful?Slide5

Some Statistics…YearConventional Motor

Motor Takaful20063818.40261.9020073865.50

337.20

2008

4253.50

391.80Slide6

Some Statistics…Growth Rate

Conventional MotorMotorTakaful2006-20071.2 %28.7 %

2007-2008

10 %

16.2 %Slide7

2 goals of claims management… 1.reducing the cost of

claims 2.treating customers fairlyboth goals can be achieved simultaneously by reducing the claims life cycle.Slide8

many changes to the way in which claims are…Handled; Viewed;Managed

Are claims evolving? changes are incremental and accumulative, rather than sudden and dramatic…Slide9

old claims environmentConsidered as a back-room function only five or ten years ago with little importance to the industrySlide10

Transformation… from an administrative

function to a key business driverSlide11

Generally…agreed that claims is much closer to the heart of the industry than ever before and in many cases claims is believed to be the biggest trigger to an organisation’s profit and lossSlide12

So…it is not surprising that in this ever-competitive industry, claims has a greater presenceSlide13

Therefore…it would be unfair to say that claims has changed whilst the rest of the insurance and takaful industry

has stood still. Claims has evolved to reflect the dynamic nature of today’s industry but claims has experienced some of the greatest changes within insurance and takaful in recent years…Slide14

contributing factorsin the evolution of claimsutilisation of new and better technology better business processesoffshoringSlide15

major concerns…having the right claims professionals is vitalattracting, recruiting and retaining the right claims staff is one of today’s most pressing issues and reinforces the need for the continuous development of professional standards in claims practice. (talent management

)Slide16

Positive changes…better technologybetter understanding of claimant satisfaction/loyaltyunderstanding of financial influence and the reduction in costsSlide17

Definition of a loss adjuster…Someone who gives a claimant half of what he claims, leaving him feeling he has received twice as much as he deserves… Slide18

A promising oasis….First and foremost, a company should place the highest priority on conducting all facets of its business in an ethical manner, including

claims managementSlide19

Just a few people acting unethically can have a negative impact on the performance of a businessSlide20

Or a treacherous mirage?...Most claims professionals agree that claims is in a perpetual state of change and it is inevitable that more is on the horizon…Slide21

Or a treacherous mirage?...Claims management is an area that can and has attracted abuse in the past (NY Fraud investigations) so its appropriate that we are mindful that claims management can have a

dysfunctional consequence…Slide22

THE PERFECT STORM

A Malaysian Case StudyHelming through the barriers of technologySkippered by

‘Captain K.

Sudharmin

’Slide23

MRC Centralised Database was established to minimise

subjectivity in motor repairs estimationSlide24

The Mandate…Implement and

localise a single and standard database of replacement motor parts nomenclature, price reference and repair times – based on the internationally recognised Thatcham Standards adopted in the United Kingdom – to prepare computerised estimates;Establish a shared communications hub or claims processing centre (CPC) through which all estimates would be routed so that a reliable statistical database and information bank is available for the industry and regulatory bodies; and

Certify and conduct compliancy audits

on all front-end estimating systems developed or marketed by software houses that are linked to the MRC database and CPC.Slide25

The VesselMotordata Research Consortium (MRC) Malaysia

Subsidiary company of a homegrown IT powerhouseawarded a 10-year concession by the motor insurance industry to provide a Centralised Database of Spare Parts Prices & Repair Times for Electronic Motor Claims SettlementsPartnered with a software company & a renowned loss adjusting firmBusiness Model was mirrored after the world class UK Motor Repair Research Centre (THATCHAM)Slide26

The AssignmentProvide A Single, Standard Spare Parts and Repair Times Database & Electronic LinkageResponsible to electronically link the various parties;

38 Insurers 12 Takaful operators 40 Loss Adjustors 1500 Repairers (Workshops)Responsible in facilitating the motor claims settlement processesTo provide the industry standards in electronic claims estimation, thus reducing subjectivities

Provide key statistics & transparency from the recorded motor claims transactions between these partiesSlide27

The ChallengeIntroducing e-technology to the automotive repair industry

Computerized 190,000 motor claims cases per year from the traditional manual methodContain the escalating claim cost paid out by the insurers (RM1.4 billion a year)Provide comprehensive updates of spare parts & repair times database to insurers, loss adjustors and repairers (end users)Educate all end users to process estimates/claims electronically

Record

all motor claims transactions and subsequently reduce malpractice and

fraudulent

claimsSlide28

The Storm RecipeInsurers, Loss Adjustors, Repairers, e-technologyInsurers in dire to reduce the claim cost which increases by 11% annually

Loss adjustors to maintain the long contract relationship with insurersRepairers must retain the escalating profit marginChanging the operational mindset of the 30 year old motor repair industryThe use of database and system will result in the following;Claims will be itemised and transparent to allClaims billings will be negotiated in great depth & detail

Claims processing cost will be significantly reduce

All claims data transactions will be compiled and reported to relevant regulatory bodiesSlide29

The Wind Picks UpRepairers cry foul

The electronic database of spare parts prices dictates the claims cost and the margin of negotiation between parties was reduced and containedRepairers were branded for malpractices and blamed insurers and loss adjusters for slashing the claims cost arbitrarilyMost repairers struggle to use the system due to lack of IT knowledgeRepairers, loss adjustors, & insurers had to change their traditional negotiation method using software & database overnightRepairers organisation was not recognized by any regulatory party, thus MRC was branded as an insurers scheme to control repairers’ livelihoodComplaints were lodged right up to the ministerSlide30

The SwellLoss Adjustors felt the pinch

The MRC integrated seamless system and database, provide super fast settlement service in comparison to loss adjusters’ manual assessment practiceThe cost of assessing the claims through technology were reduced by a stomping 70%Threatened by the sudden implementation of e-technology, loss adjusting firms scrambled in securing the business contracts with insurersLoss adjustors who were out to justify their services for insurers, suppressed the repairers estimates furtherMRC was starting to become the punching bagSlide31

The Eye of the StormWhen using MRC database & systems, study showed that most of the claims managers and executives never repaired

cars before (which is understandable)Only a handful of insurers & takaful acknowledged MRCs’ benefits thenPressured by their top management to reduce claim costs, claims executives had tough time justifying approvals electronicallyNow that there’s transparency, past settlement processes were critically looked into by auditors and/or regulatory bodySlide32

The Big HitMRC was questionedThe MRC Database was directed to include cheaper spare parts prices apart from genuine parts prices only

The Database was considered inaccurate and not comprehensive enoughMRC was considered not an independent entity and makes too much profitThe claims data (transacted) were to be considered industry’s confidential information insteadInvestment on hardware and software was not justifiedRegulatory body was questioned for supporting MRC system whole heartedlySlide33

S.O.SMRC captures less than 100 claims a month onlyMRC was in the 3rd year of operation with over RM6 million spent on network infrastructure alone

Quietly new proposals were submitted by other parties to replace MRCOld claims approval practices were still favorableMRC Spare Parts Pricing Database was target locked by the Spare Parts Industry (Total spare parts traded in year 2002 – estimated @RM 400 million)Regulatory body steps in and questioned insurers & takaful operator’s reluctance in using MRC systemSlide34

Beneficial OutcomesImproved turnaround time for motor claim settlements

Itemised BillingTechnology and StandardsNew Guidelines for Motor Claims SettlementsParts Cost ReductionPromotion of Genuine PartsMRC as Industry’s PlatformSlide35

Bonus…Our data and analysis has broken down the wall between users and suppliers

eg use of parts data provided to manufacturers who in turn review and reduce the cost of their parts which directly lower cost of insurersSlide36

Conclusion?

Motor Takaful (specifically claims management) is both a promising oasis and a treacherous mirage…Slide37

Takeaway…Claims Management a major component in conventional insurance and

takaful, is strategicDispel the perception that takaful is religio-centric; takaful is for everyoneMRC is an example of Government-Industry collaborationMRC is replicable in other marketsSlide38

Thank you…