Short Review of the Motor Vehicle Insurance Industry In Malaysia
ABDULLAH E M F ALRASHIDI1, WALEED FEKRY FARIS1, AHMAD M S ARAFAT 2
1 Department Engineering, International Islamic University Malaysia (IIUM)
2 Management, Limkokwing University
MALAYSIA
Key-Words: - Motor vehicle insurance, Malaysia insurance industry, insurance economics, motor
manufacturing.
Received: September 14, 2021. Revised: May 19, 2022. Accepted: June 11, 2022. Published: July 22, 2022.
1 Introduction
The insurance industry is very well spread nowadays.
Motor vehicle insurance (MVI) is one of the most
important branches in the non-life insurance
category. In most countries, motor vehicle insurance
is one of the most premium revenue earners and that
includes Malaysia. Due to the increased number of
motor vehicle production, the market for MVI is
increasing rapidly [1][2]. Motor vehicle term is used
usually in vehicle registration statutes and in
financing which can be defined as a machine that is
able to transport people from one place to another
location and it is self-driven by electrical or
mechanical power [3][4]. What makes motor
insurance for vehicles different from other insurance
is that it is mandatory in most countries’
governments. MVI is related to all types of motor
vehicles-motorcycles, cars, jeeps, commercial
vehicles etc. it is mandatory by the government to
guarantee the safety of the people [5][6][7]. Which
is written in the law of MVI defined as follows:
“Motor Vehicle Insurance Law is any state law that
addresses the manner in which third-party liability or
first-party indemnity coverage must be offered,
provided, or maintained with respect to a motor
vehicle (e.g., a financial responsibility, compulsory
insurance, uninsured/underinsured motorists
(UM/UIM), or personal injury protection (PIP) law).
“[8]
2 Motor vehicle insurance in Malaysia
Motor insurance is compulsory for all vehicles in
Malaysia when using Malaysian public roads under
the Road Transport Act 1987 [9][10]. There are three
types of motor insurance available and the law
requires that every driver has a minimum coverage of
third-party liability. At the purchase of the motor
vehicle, it is required to buy an MVI [11][12][13].
The most common type of motor insurance in
Malaysia are:
Act Cover: It is the minimum coverage that meets the
requirements of the Road Transport Act 1987. The
required coverage focuses on legal liability in the
event of death or bodily harm to third parties
(excluding passengers). This Policy is seldom drawn
up by the Insurers [14].
Third-Party cover: This policy insures the owner
against claims for personal injury or death by others
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2022.19.109
Abdullah E. M. F. Alrashidi,
Waleed Fekry Faris, Ahmad M. S. Arafat
E-ISSN: 2224-2899
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Volume 19, 2022
Abstract: Motor vehicle insurance (MVI), which is the most effective and widespread means of protecting
personal property, has attracted a great deal of attention. It is crucial to understand the current development of
Malaysia’s motor vehicle insurance industry. Based on this context, this article examines the development
model of the Malaysian motor insurance industry and its relationship with the Malaysian economic
development. This article reviews ways to achieve targeted product promotion and customization of motor
vehicle insurance (MVI) according to regional characteristics. The purpose of this article is to lay a solid
foundation for promoting the development of the Malaysian automobile insurance industry and its relationship
with motor production in Malaysia. The article investigates the MVI policy’s effect on the economy and the
production of car motors in Malaysia compared with other advanced countries. In addition to that, the article
highlights the effect of COVID- 19 on the MVI industry.
(known as the third party). Along with loss or damage
to third-party property caused by your vehicle [15].
Third-Party, Fire and Theft cover: This policy
provides insurance against claims of bodily harm and
death, loss of property or damage caused by third
parties. And loss or damage to your own vehicle as a
result of fire or accidental robbery [16].
Comprehensive cover: it offers the widest coverage
compared with the previous policies. Such as
personal injury and death of third parties, loss or
property damage of third parties, and loss or damage
to your vehicle by accidental fire, theft or accident
[17].
3 Motor insurance sales in Malaysia
Malaysian motor insurance is projected to grow from
$2.0bn in 2018 to $2.4bn in 2023 according to Global
Data. The growth in terms of Net Earned Premium
(NEP). Since motor insurance is compulsory in
Malaysian law, at the end of 2018 it reported a
contraction of 56% of the total general insurance
NEP, which is more than half of the insurance NEP
in Malaysia. It can be seen from Figure 1 the
Malaysian motor insurance earned premium from
2014 until 2023 is growing steadily [18] [19].
Fig.1 Malaysia motor insurance net earned
premiums, 2014 -2023
In general, the insurance industry has recorded a
growth of 1.5% in 2018 from its two largest insurance
industries in motor and fire. The amount of gross
written premium is RM 17.92 billion. Which makes
the motor insurance industry the largest class in the
insurance industry. The growth of motor insurance
recorded gross is 1.8% supported by the increase in
new vehicle sales in both private and commercial
vehicle segments. Close to 600,000 new vehicles
were sold in 2018 compared to 580,000 in 2017 as a
result of increased demand during the tax-free
months from June to August 2018. For the Motor
class, the general insurance industry paid out claims
amounting to RM 5.45 billion in 2018 [20] [21].
4 COVID-19 effect on the MVI
industry
The Motor Insurance industry has a strong
relationship with the sales of cars. Based on the data
released from the Malaysian Automotive Association
(MMA) on the production of cars in 2020 and 2021
presented in Table 1 and the sales of the motor car
presented in table 2. It can be seen from Table 1 that
the production variance of Commercial vehicles is
1.40 comparing the production in 2021 with 2020
how ever for passenger vehicles PV is less than one
due to the drop in production of PV in 2021. The sales
variance in table 2 of PV is also less than 1 due to the
reduction in production. However, for a CV it is more
than one. although the crisis of the COVID-19 has
affected most sectors in the market, car sales did not
decline. Due to the exemption from the SST the
buyers still requesting care which is expected to last
until 31 December. It is projected by the MMA that
the sales are going to increase given that the
production of vehicles is ramping up worldwide
[22][23][24].
Table 1Production of motor cars in Malaysia [22]
segment
Year
2020
2021
PV
(passenger
Vehicles
299,881
281,621
CV
(Commercial
vehicles)
15,982
22,375
Total
315,863
303,996
Table 2 Sales of the motor car in Malaysia [22]
segment
Year
2020
2021
PV
(passenger
Vehicles
312,427
282,992
CV
(Commercial
vehicles)
31,592
35,882
Total
344,019
318,874
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2022.19.109
Abdullah E. M. F. Alrashidi,
Waleed Fekry Faris, Ahmad M. S. Arafat
E-ISSN: 2224-2899
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Volume 19, 2022
Due to the lockdown restriction in Malaysia in 2020
and 2021, it was expected a drop 2.2% in the
Malaysian general insurance industry. Due to low
economic activity and weak demand from the
consumer. Malaysia’s general insurance business is
expected to grow at a compound annual growth rate
(CAGR) of 2.4% from 2019 to 2024 compared to the
earlier forecast growth of 4.9%.
Figure 2 Malaysia General Insurance Market
According to MAA 48.3% of the insurance industry
is from the motor insurance class reported in 2019.
Due to this big share in the insurance industry, the
decline in the sales of PV cars in 2020 has affected
the insurance industry by 2.2%. the growth of the
insurance market gets back to its normal rate in 2021.
The decline in the insurance industry is not only due
to MVI it is also affected by property insurance which
recorded a 31.5% decline in the first half of 2020
[23][24].
5 Discussion
The auto insurance industry in Malaysia started as old
as the 1930s when it was required legal by the
government for the vehicle driver to have insurance
that covers any liability caused by their car [25]. This
explains how this insurance has grown to be the
largest sector in the general insurance market [26]. In
general insurance industry have a great influence on
economic stability. It has been proven that insurance
hardly falls in times of economic crisis [27]. The
previous data demonstrated in Figure 2 exhibit that
motor insurance has not been affected by the crisis of
COVID-19 from 2019 until 2021 Malaysia's motor
insurance have earned around 26.1 billion and the
market is growing steadily [28][29]. The only drop
was in the insurance market in general in the first half
of 2020 recording a Premiums written reduced by
3.6% in general insurance later on the growth of the
market recovered.
Many factors influence the growth of the motor
insurance industry [30][31]. Such as the Government
made it mandatory for anyone driving a car on
Malaysian roads to own an MVI. On the other hand,
the motor insurance industry policies evolve every
year giving the insurance industry flexibility to come
up with new products every year to sell to the
consumers. In 2020, the value of gross written
premiums in the motor insurance sector in Malaysia
reach the amount of RM 8.4 billion. When comparing
the motor insurance sector to other sectors in the
Malaysian market it will still be the dominating one.
6 Conclusion
In the insurance industry in Malaysia, there are four
sectors that dominate the insurance market the largest
sector is the one with the highest premium
contributions which is the MVI. The MVI has the
main contribution to the general insurance industry
taking 54% of the total net premium contribution in
the general insurance market, this average was
reported until 2009. However, no matter what is the
change in the market MVI remains the highest
dominating the insurance industry. Due to the fact it
is compulsory by the Malaysian Government for
every driver who drives a car on Malaysian roads. A
correlation between the Motor insurance industry and
car sales and production in Malaysia was presented
in the review. The sales of auto vehicles affect the
motor insurance industry’s growth. The research
shows that motor insurance provides stability to the
market due to its consistency in growth even under
economic crises.
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Abdullah E. M. F. Alrashidi,
Waleed Fekry Faris, Ahmad M. S. Arafat
E-ISSN: 2224-2899
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DOI: 10.37394/23207.2022.19.109
Abdullah E. M. F. Alrashidi,
Waleed Fekry Faris, Ahmad M. S. Arafat
E-ISSN: 2224-2899
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Volume 19, 2022
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Contribution of individual authors to
the creation of a scientific article
Abdullah E M F Alrashidi carried out the writing
and research of the article, Waleed Fekry Faris
worked on the editing of the review paper, and
Ahmad M S Arafat was responsible for the
Statistics.
WSEAS TRANSACTIONS on BUSINESS and ECONOMICS
DOI: 10.37394/23207.2022.19.109
Abdullah E. M. F. Alrashidi,
Waleed Fekry Faris, Ahmad M. S. Arafat
E-ISSN: 2224-2899
1244
Volume 19, 2022
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