The Malaysian Competition Commission (MyCC) recently decided that general insurance companies in Malaysia violated the Competition Act 2010. As a result of this decision, MyCC has proposed a total fine of RM213.45 million against all general insurance companies in Malaysia for breaking the anti-competition law.
What is the Competition Act 2010?
The Competition Act was implemented on 01/01/2012. It is set to protect the Malaysian consumer from large companies that fix prices to keep the profit high.
For example, if all the bread makers decide to fix the price for bread at RM2.99, then the bread makers are not allowing competition. This is called anti-competition. This is bad for the consumer because in a free market, some bread makers may decide to sell the bread for RM 2.00, because the cost to produce the bread is only RM 1.00.
Who are the main parties?
1) Malaysian Competition Commission (MyCC) – an independent body formed in June 2011 to enforce and implement the Competition Act.
2) Bank Negara Malaysia (BNM) – the Central Bank of Malaysia.
3) Persatuan Insurans Am Malaysia (PIAM) – also known as the General Insurance Association of Malaysia (GIAM). An association which represents and promotes the interests of general insurers in Malaysia.
4) Federation of Automobile Workshop Owners’ Association of Malaysia (FAWOAM) – an association which represents and promotes the interests of workshops in Malaysia.
5) General insurance companies in Malaysia – the insurance companies who provide motor insurance cover under conventional insurance.
What actually happened?
In 2011, BNM directed PIAM and FAWOAM to come to an agreement involving motor parts discounts and labour hourly rate, as everyone was pricing it their way which resulted disputes among general insurance companies and workshops.
The terms agreed between PIAM and FAWOAM were:
- Fixed trade discount in agreed percentages for parts on Proton, Perodua, Nissan, Toyota, Honda, Naza
- Fixed rate for labour for general insurance companies’ or PIAM approved workshops at RM30/ hour.
Some workshops disagreed at being forced to provide trade discounts on parts and fixed hourly rates as this will affect their capability to provide the level of services required and will impact their profit.
The Malaysian Competition Commission viewed the agreement as a violation to the Competition Act as it indirectly forms a cartel and suppressed workshops through standardized trade discounts on spare parts and labor hourly rates. This in turn may reduce the quality of repairs to motor vehicles.
What does this mean to Malaysian drivers?
There is no change for the Malaysian drivers, because the insurance companies are paying the workshops for the repair. The fixed prices help the insurance companies make more profit from the workshops. This decision by MyCC is a big win for the workshops, because without fixed prices, they can decide their own prices.
What will happen next?
The Malaysian Competition Commission’s (MyCC) proposed fine is not final. General insurance companies are now coordinating with PIAM and BNM to seek a judicial review to defend themselves against MyCC’s claim. The fine will be a big impact to the insurance companies, especially the smaller insurance companies.
If MyCC wins, they will turn its attention to Malaysian Takaful Association (MTA) members offering motor policies.
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