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

1. KHAERUDDIN SUDHARMIN MBA (Hull), LS7037 (Malaysia), Fellow PWI (UK) Managing Director & CEO MOTORDATA RESEARCH CONSORTIUM Malaysia in partnership with THATCHAM UK Motor Takaful:A promising Oasis or a Treacherous Mirage?A Malaysian Case Study with special focus on Claims Management

2. Agenda • Prologue slides 2-6 • Claims Management overview slides 7-21 • MRC case study slides 22-34 • Epilogue slides 35-37

3. What is Motor Takaful? • 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.

4. What is Motor Takaful? • 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 ratio • The surplus is arrived at after deducting expenses such as claims, re-takaful, technical reserves, and management expenses • Contributors will be entitled to this surplus if they have made no claim during the period of takaful

5. Some Statistics…

6. Some Statistics…

7. 2 goals of claims management… 1.reducing the cost of claims 2.treating customers fairly • both goals can be achieved simultaneously by reducing the claims life cycle.

8. 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…

9. old claims environment • Considered as a back-room function only five or ten years ago with little importance to the industry

10. Transformation… from an administrative function to a key business driver

11. 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 loss

12. So… • it is not surprising that in this ever-competitive industry, claims has a greater presence

13. 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 takafulin recent years…

14. contributing factorsin the evolution of claims • utilisation of new and better technology • better business processes • offshoring

15. major concerns… • having the right claims professionals is vital • attracting, 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)

16. Positive changes… • better technology • better understanding of claimant satisfaction/loyalty • understanding of financial influence and • the reduction in costs

17. 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…

18. 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 management

19. Just a few people acting unethically can have a negative impact on the performance of a business

20. 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…

21. 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…

22. A Malaysian Case Study Helming through the barriers of technology Skippered by ‘Captain K. Sudharmin’ THE PERFECT STORM

23. MRC Centralised Database was established to minimise subjectivity in motor repairs estimation

24. The Mandate… • Implement and localisea single and standard database of replacement motor parts nomenclature, price reference and repair times – based on the internationally recognisedThatcham 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.

25. The VesselMotordata Research Consortium (MRC) Malaysia • Subsidiary company of a homegrown IT powerhouse • awarded a 10-year concession by the motor insurance industry to provide a Centralised Database of Spare Parts Prices & Repair Times for Electronic Motor Claims Settlements • Partnered with a software company & a renowned loss adjusting firm • Business Model was mirrored after the world class UK Motor Repair Research Centre (THATCHAM)

26. The AssignmentProvide A Single, Standard Spare Parts and Repair Times Database & Electronic Linkage • Responsible to electronically link the various parties; 38 Insurers 12 Takaful operators 40 Loss Adjustors 1500 Repairers (Workshops) • Responsible in facilitating the motor claims settlement processes • To provide the industry standards in electronic claims estimation, thus reducing subjectivities • Provide key statistics & transparency from the recorded motor claims transactions between these parties

27. The ChallengeIntroducing e-technology to the automotive repair industry • Computerized 190,000 motor claims cases per year from the traditional manual method • Contain 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 claims

28. The Storm RecipeInsurers, Loss Adjustors, Repairers, e-technology • Insurers in dire to reduce the claim cost which increases by 11% annually • Loss adjustors to maintain the long contract relationship with insurers • Repairers must retain the escalating profit margin • Changing the operational mindset of the 30 year old motor repair industry The use of database and system will result in the following; • Claims will be itemised and transparent to all • Claims 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 bodies

29. 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 contained • Repairers were branded for malpractices and blamed insurers and loss adjusters for slashing the claims cost arbitrarily • Most repairers struggle to use the system due to lack of IT knowledge • Repairers, loss adjustors, & insurers had to change their traditional negotiation method using software & database overnight • Repairers organisation was not recognized by any regulatory party, thus MRC was branded as an insurers scheme to control repairers’ livelihood • Complaints were lodged right up to the minister

30. 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 practice • The 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 insurers • Loss adjustors who were out to justify their services for insurers, suppressed the repairers estimates further • MRC was starting to become the punching bag

31. The Eye of the Storm • When 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 then • Pressured by their top management to reduce claim costs, claims executives had tough time justifying approvals electronically • Now that there’s transparency, past settlement processes were critically looked into by auditors and/or regulatory body

32. The Big HitMRC was questioned • The MRC Database was directed to include cheaper spare parts prices apart from genuine parts prices only • The Database was considered inaccurate and not comprehensive enough • MRC was considered not an independent entity and makes too much profit • The claims data (transacted) were to be considered industry’s confidential information instead • Investment on hardware and software was not justified • Regulatory body was questioned for supporting MRC system whole heartedly

33. S.O.SMRC captures less than 100 claims a month only • MRC 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 MRC • Old claims approval practices were still favorable • MRC 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 system

34. Beneficial Outcomes • Improved turnaround time for motor claim settlements • Itemised Billing • Technology and Standards • New Guidelines for Motor Claims Settlements • Parts Cost Reduction • Promotion of Genuine Parts • MRC as Industry’s Platform

35. Bonus… Our data and analysis has broken down the wall between users and suppliers eguse of parts data provided to manufacturers who in turn review and reduce the cost of their parts which directly lower cost of insurers

36. Conclusion? Motor Takaful (specifically claims management) is both a promising oasis and a treacherous mirage…

37. Takeaway… • Claims Management a major component in conventional insurance and takaful, is strategic • Dispel the perception that takaful is religio-centric; takaful is for everyone • MRC is an example of Government-Industry collaboration • MRC is replicable in other markets

38. Thank you…