Fraudulent claims cannot justify higher premiums, say consumer groups

KUALA LUMPUR: Consumers should not be unfairly burdened due to fraudulent or manipulated motor insurance claims, the Federation of Malaysian Consumers Associations (Fomca) said.

Fomca chief executive officer Dr T. Saravanan said the reality was that rising claims costs would eventually affect insurance premiums.

"For now, there may be regulatory controls and safeguards," he said.

"But how long can consumers continue to be protected if the underlying problems within the industry are not addressed?"

He said it was time to revamp the motor insurance claims ecosystem as the present framework clearly needed stronger checks and balances.

"Similar to efforts to reset and reform the healthcare and medical insurance ecosystem, we need a comprehensive review of the motor insurance industry, particularly the claims process."

He said Fomca's approach was not merely to receive complaints, but to help consumers understand the issue, identify the parties involved and facilitate dispute resolution where appropriate through the National Consumer Complaints Centre.

"The first step is usually to obtain the relevant documents and evidence and engage the company, insurer, workshop or other relevant party to seek clarification and an appropriate resolution."

He said there was a need to establish a neutral and independent mechanism to verify questionable or high-value claims.

"When different parties within the ecosystem have their own commercial interests, there is always a risk of conflict of interest, inflated costs or weaknesses being exploited.

"Ultimately, these additional costs may be passed back to consumers through higher premiums.

"Therefore, the responsibility cannot simply be placed on policyholders."

He said insurers must strengthen fraud detection and claims verification, while workshops, adjusters and other parties involved in fraudulent or inflated claims must also be held accountable.

Saravanan said Bank Negara Malaysia, as the regulator of the insurance industry, must take a firm lead in addressing these structural weaknesses.

"Insurance fraud should be investigated and tackled quickly, while the overall claims ecosystem should be reviewed to identify loopholes and strengthen accountability.

"This issue goes beyond motor insurance. Whether it involves motor, medical, personal or life insurance, continuously passing increasing costs back to consumers is not a sustainable solution.

"The emphasis must therefore be on reforming the system, closing loopholes, introducing stronger independent verification and taking firm action against fraud. Honest policyholders should not continually be made to pay for weaknesses and abuses within the system."

The Malaysia Consumers Movement (MCM) said policyholders should not be forced to bear the burden of higher insurance premiums based on unsubstantiated allegations of motor insurance fraud.

MCM legal adviser Mohan Sankaran said genuine policyholders who strictly abide by their policy terms should not collectively absorb industry losses attributed to unverified or merely suspected fraud.

"Consumers should not be made to bear the cost of fraud through higher premiums as a matter of course. If insurers believe a claim is fraudulent or manipulated, then that claim must be properly investigated and supported by evidence."

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'STRONGER FRAUD DETECTION MUST COME FIRST'

He said the insurance industry must draw a clear line between suspected and established fraud and suspicion alone could not automatically classify a claim as fraudulent.

"Where fraud is proven, the appropriate action should be taken against the parties responsible.

"It would be unfair for genuine policyholders who have paid their premiums and complied with the terms of their policies to collectively absorb losses attributed to alleged fraud."

Mohan said insurance providers should prioritise tighter controls within their claims ecosystem and improve internal fraud detection mechanisms rather than passing financial burdens onto the public.

"The insurer's priority should therefore be stronger fraud detection, proper investigation, enforcement against offenders and tighter controls within the claims ecosystem rather than simply passing the financial burden on to consumers through higher premiums."

He added that any industry proposal seeking to justify premium hikes on the grounds of rising fraud must be backed by transparent, independently verifiable data showing the actual financial impact of proven fraudulent claims.