Page 220 - Contributed Paper Session (CPS) - Volume 1

CPS1283 Kelvin H.C.Y et al.

Application of generalised linear models during
the phased liberalisation of the Malaysian motor
and fire tariffs
Kelvin Hii Chee Yun, Tiffany Tan Shi En
MSIG Insurance (Malaysia) Bhd

Abstract
Bank Negara Malaysia’s Phased Liberalisation of Motor and Fire Tariffs policy
document, which came into effect on 1st July 2016, implements Bank Negara
Malaysia’s initiative to deregulate the pricing of Motor and Fire products
through the gradual disapplication of requirements under the Motor and Fire
Tariff. Under a phased liberalisation environment, general insurers were
allowed to determine their premiums by adopting preferred rating factors in
the application of statistical and predictive models. The policy document
specifies that the board and senior management are expected to leverage on
the advice of a professionally qualified actuary in fulfilling their governance
requirements and the introduction of new products. Generalised Linear
Models is widely accepted as the industry standard for pricing Motor and Fire
insurance in many developed markets. In line with these developed markets,
the Malaysian actuaries widely adopted Generalised Linear Models as their
individual risk Motor model and their individual Fire pricing model during the
phased liberalisation period.

Keywords
Phased Liberalisation; Malaysian Motor Tariff; Malaysian Fire Tariff; Actuary;
Generalised Linear Models

1. Introduction
Background
Prior to 1st July 2016, general insurance companies in Malaysia determined
their Motor and Fire insurance premium based on the Malaysian Motor and
Fire Tariffs. Bank Negara Malaysia’s Phased Liberalisation of Motor and Fire
Tariffs policy document, which came into effect on 1st July 2016, implements
Bank Negara Malaysia’s initiative to deregulate the pricing of Motor and Fire
products through the gradual disapplication of requirements under the Motor
and Fire Tariff. The Motor and Fire Tariffs, which has been in place for more
than three decades, will no longer be applicable to certain types of Motor and
Fire products. This policy document sets out requirements for the gradual
disapplication of the Motor and Fire Tariffs with the aim of promoting orderly
conditions under a market-based pricing approach.
The policy document requirements are intended to ensure that:

209 | I S I W S C 2 0 1 9