1. Motor Takaful: A promising Oasis or a Treacherous Mirage
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 UK

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…
Year
Conventional Motor
Motor Takaful
2006
261.90
2007
337.20
2008
391.80

6. 1.2 % 28.7 % 10 % 16.2 % Some Statistics… 2006-2007 2007-2008 Growth
Rate
Conventional Motor
Motor
Takaful
1.2 %
28.7 %
10 %
16.2 %

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. administrative function to a
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 takaful in recent years…

14. contributing factors in 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. better understanding of claimant satisfaction/loyalty
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. THE PERFECT STORM A Malaysian Case Study
Helming through the barriers of technology
Skippered by
‘Captain K. Sudharmin’

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

24. 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.

25. The Vessel Motordata 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 Assignment Provide 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 Challenge Introducing 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 Recipe Insurers, 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 Up Repairers 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 Swell Loss 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 Hit MRC 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.S MRC 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 – 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 eg use 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…