Consumers Association of Penang

Giving voice to the little people...since 1970

Compensation based on market value not insured value

General insurance companies should insure motor vehicles based on the agreed value. Many policyholders are already under the wrong impression that they own an agreed value motor policy.

They are unaware that in Malaysia, motor insurance policies are indemnity policies. This means that if the car is written off as a total loss, the amount compensated by the insurance company will only be its market value, which is often much lower than the insured value.

The policyholder, on the other hand insists that it is only fair that he is compensated based on the insurance coverage that he paid for.

For example, a car is insured for RM50,000 and the premium for basic comprehensive coverage is RM1,525.50. However when a total loss claim is filed, the insurance company is willing to pay only RM40, 000 because that is the market value of the car. Premium for a RM40, 000 coverage is RM1,265.50 a difference of RM260.00.

Insurance companies are happy with indemnity motor polices because they can earn extra premiums (in this case RM260.00) at no extra risk.

Naturally this is seen as unfair and gives rise to ill –feeling towards the insurance company. The problem can be avoided if the car is insured for an agreed value, as in possible in the U.K.

With an agreed policy, the policyholder and the insurance company come to an agreement on the worth of the car. As a result, the policyholder is aware of the amount he will be paid if the car is written off.

Deciding on the agreed value should not be a problem because insurance companies already have a good idea of the worth of a car based on its year and make.

At each renewal, the insurance company will review the value and suggest an amended agreed value.

We urge Bank Negara to implement the agree value policy for motor insurance. This type of policy is fairer to the policyholder as he will be compensated based on the premium that he paid.