Own Damage, Third Party Property Damage Claims and Malaysian Motor Insurance: An Empirical Examination
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Date
2011
Journal Title
Journal ISSN
Volume Title
Publisher
Australian Journal of Basic and Applied Sciences
Abstract
Risk is an indication of uncertainty about variability in the outcomes around some expected
values. One can concludes that risk has its cost which depends on the level of uncertainty about the
variability surrounding the expected values. Therefore, various types of risk exist in different sectors
of human endeavors that deserve attentions. Thus, different risk management devices are formulated
to minimize risk and its cost. Motor insurance policy is one of such policy usually purchased to
reduce risk and financial losses associated with motor accident. This is usually aimed at mitigating
loss reduction. Direct losses may arise from auto accident which may cause physical damage to the
owner of the vehicle, the vehicle and the third party property. This paper examined the effects of own
damage claims and third party property damage claims to the risk exposure of Malaysian insurers for
three years from 2001 to 2003. Generalized Lease Square (GLS) was employed to examine these
effects. It was found that own damage may not constitute a big treat to the total risk exposure of
Malaysian insurer. While it increases their risk exposure by 2% which is not statistically significant;
the third party property damage increased motor insurers’ risk by almost 15%. Based on the
significant statistics, we found the Malaysian insurers’ risk exposure reduced with a higher premium
the third party property damage in motor insurance policy.
Description
Keywords
Motor Insurance; Insurer; Own Damage; Third Party Property Damage.