I do appreciate the value of this in time information and the quality of the delivery - CEO of a multinational insurance company

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1 Issue 7 : Oct 2013 ISM Net Knowledge Management System (KMS) The Knowledge Management System or fondly known as KMS is an online business intelligence tool which has analytical capabilities to benchmark own company s performance against the industry. Several modules are available within KMS to suit different needs. For example, the top management utilizes the Market Performance module to monitor the company s performance and ranking in different classes/ segments within the industry. Underwriters, portfolio managers and claims managers may utilize the fire and motor module to obtain insight on the company s portfolio in comparison to the industry. I do appreciate the value of this in time information and the quality of the delivery - CEO of a multinational insurance company KMS is an integral part of daily processes - Underwriter of an international insurance company. INSIDE THIS ISSUE Fraud Model. 2 PDPA.. 2 Data Loss Prevention.. 3 Industry Insight.. 3 The rich information provided in KMS allows me to prepare in depth reports for my management - Agency Manager of a multinational insurance company. If you like to find out more about KMS or have a go at it, do contact Vaijyenthi at vaijyenthi@ism.net.my for a free trial.

2 Fraud Model 3rd Quarter 2013 Updates Insurance or Takaful fraud is not something new to the industry. Fraudulent claims may amount up to 10% of total claims incurred and using the motor insurance portfolio as reference, this works out to RM 0.5 billion. Fraud is a hidden cost as it is not fully known and has been accepted as cost of doing business. It is also very expensive to detect fraud as it is very labor intensive. Therefore, we will be assessing the implementation of a tactical solution to detect of organized, cross industry fraud. This tactical solution, the fraud model, utilizes a combination of several detection techniques such as automated business rules, anomaly detection, predictive modeling, database searches and network analysis. The techniques combined with the rich data available will provide a powerful tool for the industry to fight against fraud. The initial focus of the fraud model will be on motor insurance due to the availability of the data and will be subsequently expanded to other classes as well. Personal Data Protection Act (PDPA) The Personal Data Protection Act is expected to be implemented in Malaysia very soon. The act seeks to regulate the processing of personal data by data users in commercial transactions and to safeguard data subject s interest. Since we collect vast amount of data from the industry, we will undertake a review exercise and implement the necessary measures to ensure that we comply with the act. This exercise is anticipated to be completed by end of

3 Data Loss Prevention The objectives of DLP implementation is to prevent data loss, secure business processes, and manage compliance and risk by providing mechanism to classify, monitor, protect data in accordance with ISM information classification policies and alert on any security breach. It delivers unparalleled visibility into who is sending sensitive data; what kind of data is being sent; and where this data is going. Furthermore, it controls what data staff can transfer and making sure that staff do not send sensitive or critical information outside of the corporate network which might cause a huge loss to the organization. The DLP is expected to be implemented by 2014 within ISM. Industry Insight An Analysis of Claims Cost for Motor Insurance Outstanding claims reserve (OCR) or Reserve for Notified (or Reported) Outstanding Claims¹ is defined as provision of the estimated amount of claims that have not been settled. It can be interpreted in two different fashion; hence care is needed during the interpretation. For example: a) Only including claims that have been reported; in this case the provision may be called the Reserve for Notified (or Reported) Outstanding Claims. b) Including all claims that have yet to be settled, i.e. inclusive of IBNR, IBNER, re-opened claims and future claims expenses. For the purpose of this paper, we will provide the Average Cost of Claim, which can be used to benchmarking against your individual company s Claims Reserve, based on definition (a) as above. ¹ Fortar, D. MA, FFA, Raymont, D.(2002), Glossary of Terms General Insurance, Institute of Actuaries, London. 3

4 Industry Insight The basis of calculation of the Average Cost of Claims is as below:- 1. Claims Incurred: Claims paid for the accounting year plus the outstanding claims as at the end of the accounting year regardless of accident year. Loss Adjustment Expenses such as legal fee, adjusters fee, etc. is not included in the claims incurred amount. 2. Claims Incurred Count: Total number of unique claims as at the end of the accounting year regardless of accident year. 3. Average Cost of Claims: Claims incurred divided by the claims incurred count. 4. The Average Cost of Claims is segregated as per the following nature of loss, i.e. Own Damage, Third Party Property Damage, Theft and Third Party Bodily Injury. 5. Data source: ISM Motor Database (Claims). OVERALL (ALL TYPES OF LOSSES) The overall Average Cost of Claims has been increasing on a year on year basis for all classes of vehicles. Motorcycle class Average Cost of Claim increased from RM 5,690 in 2008 to RM 7,020 in 2012; a CAGR of 5.4% for the period 2008 to Private car and commercial vehicle classes had a CAGR of 3.7% and 3.0% respectively. Table 1.0 Average Cost of Claims for All Types of Losses (RM) Motorcycle 5,690 6,570 7,020 6,980 7, % Private Car 6,440 7,090 7,320 7,560 7, % Commercial Vehicle 11,930 13,170 13,830 14,380 13, % 5 Ways Not to Procrastinate at Work 1. Admit Delaying -As soon as you take the plunge and acknowledge your procrastination, you are now in control. 2. Schedule a Meeting with Yourself-Put it on your calendar and don t be late. If you have a deliverable at work that is due in two weeks, the first step is to guess how long it s going to take you to complete it. 3. Work at Your Best Time - We all have certain times of the day when we feel at our best. When do you feel like you are firing on all cylinders? That is the time you want to work on your task. 4. Break it Down- Take what you need to do and break it down into smaller more digestible parts. If you get started on something small, you ll find it s much easier to keep working on it. You ll feel like you ve made some good progress so you might as well finish the job. 5. Make Yourself Accountable - Make your goal public. Tell other people what you intend to do and when you want to do it. It s not for the faint of heart, but the possibility of public embarrassment is always a surefire way to guarantee you ll get it done. Source: 4

5 Industry Insight OWN DAMAGE For Own Damage claims, the Motorcycle class presented a significant CAGR of 8.9% as compared to Private Car (CAGR 5.2%) and Commercial Vehicle (CAGR 3.1%) Table 2.0 Average Cost of Claims for Own Damage Motorcycle 1,680 1,980 1,990 2,260 2, % Private Car 5,190 5,640 5,880 6,160 6, % Commercial Vehicle 10,080 10,430 10,590 11,310 11, % THIRD PARTY PROPERTY DAMAGE Average Cost of Claim for Commercial Vehicle recorded the highest CAGR of 9.2% as compared to Private Car (CAGR 5.0%) and Motorcycle (CAGR 0.7%). Table 3.0 Average Cost of Claims for Third Party Property Damage Motorcycle 2,130 2,170 2,210 2,390 2, % Private Car 2,100 2,170 2,370 2,460 2, % Commercial Vehicle 3,170 3,410 4,060 4,350 4, % THEFT Average Cost of Claim for Theft was noted to be stable with marginal increase amongst the classes. Table 4.0 Average Cost of Claims by Vehicle Class for Theft Motorcycle 3,450 3,480 3,400 3,350 3, % Private Car 38,950 37,290 41,090 40,530 40, % Commercial Vehicle 38,390 40,780 42,570 40,870 42, % 5

6 Industry Insight THIRD PARTY BODILY INJURY Meanwhile, Average Cost of Claim for Third Party Bodily Injury for the Motorcycle class is RM24,000, RM28,030 for Private Car and RM39,460 for Commercial Vehicle in the year The Average Cost of Claims increased with CAGR of 6.2%, 5.2% and 5.9% respectively for each class. Table 5.0 Average Cost of Claims for Third Party Bodily Injury Motorcycle 18,880 22,670 23,290 23,230 24, % Private Car 22,860 24,820 27,960 27,780 28, % Commercial Vehicle 31,330 37,370 40,470 41,480 39, % Key takeaway;- Motorcycle class: The Average Cost of Claims for Third Party Bodily Injury recorded the highest CAGR followed by Own Damage. The increase in CAGR for Own Damage claim is in tandem with the increase of motorcycle with more than 250cc sales/exposure. This is further supported by statistics from ISM-KMS (Motor Underwriting Module) which indicates that the exposure for motorcycles above 250cc had a CAGR of 23% from the year 2008 to ISM Insurance Services Malaysia Berhad Unit1-1, Level 1, Tower 9, Avenue 5, Bangsar South, The Horizon, No.8, Jalan Kerinchi, Kuala Lumpur Phone: Fax: info@ism.net.my Table 6.0 No. of policies for Motorcycle above 250cc Underwriting Year No of Policy , , , , ,187 CAGR 23% Private Car: Average Cost of Claims shows an increasing trend for Third Party Property Damage, Own Damage and Third Party Bodily Injury with a CAGR of more than 5.0%. Theft on the other hand portrayed stability with a CAGR of less than 1%. Commercial Vehicle: The Average Cost of Claim for Third Party Property Damage experienced the highest increase with a CAGR of 9.2%, followed by Third Party Bodily Injury (5.9%), Own Damage (3.1%) and Theft (2.3%). 6