The ROAD Transport Act 1987 (RTA) regulates motor vehicles and traffic on roads in Malaysia and enforces compulsory insurance. Section 90(1) of the RTA states that:” it shall not be lawful for any person to use or to cause or permit an other person to use, a motor vehicle unless there is in force a policy of insurance or such other security in respect of third party risks”.

Why is motor insurance made compulsory by law?

• To make available funds needed to compensate victims of road accidents.

• To ensure funds a readily available when damages are awarded by the courts.

• To ease the Government’s financial burden and to protect national interest.

What is the penalty for contravention of the law?

Section 90(2) of the RTA state that a person who contravenes this section of the law shall be guilty of an offence and liable to a fine not exceeding RM1,000 or 3 months imprisonment and if the court deems fir. The offender will be disqualified from holding a driving licence for 12 months from the date of conviction.

What is the minimum cover required by law?

Section91(b) of the RTA states that a policy insurance must be issued by an “authorized insurer” to cover liability for death or bodily injury to any person cause by or arising out of the se of the vehicle or land implement drawn on a road.

What is the definition of a “road” under the law?

The RTA defines ‘road’ to mean any public road and any other rod to which the public has access (ie. including private roads). “Road” also includes bridges, tunnels, lay-bys, ferry facilities, interchanges, roundabouts, traffic, islands, road dividers, all traffic lanes, acceleration, deceleration lanes, side-tables, median strips, overpasses, underpasses, approaches, entrance and exist ramps, toll plazas, services areas and other structures and fixtures to fully effect its use and a road under construction.

Types of Motor Insurance Coverage 

1.   Act Cover

Act Cover is the minimum statutory insurance prescribed by the ROAD Transport Act 1987 (RTA). The term ‘Act’ implies that the insurance policy is issued I accordance with the requirements of the RTA, which is to cover liability for death or bodily injury to any person arising from the use of a motor vehicle on a road. In Malaysia, ‘Act Cover’ is not sold as a policy but is provided together with third party insurance which includes liability for property damage. A main reason for this the low premiums and the high risk of providing unlimited third-party liability for bodily injury claims.

2.   A Third Party

A Third-Party policy insures liability for property damage in addition to liability for death or bodily injury to any person arising from the use of a motor vehicle o a rod. While third party insurance premiums are higher than those for Act Cover, they are very much lower than those for comprehensive policies. Because of its low premiums, third party cover is sought after mainly b owners of old vehicles (since their value is low anyway) while insurers become more selective in providing third party insurance because the premiums do not commensurate with long-tailed liability risks. Cost of claims invariably escalates as claim reserves, eroded by inflation, have to increase with time and in line with the trend of large court awards for personal injury claims.

3.   Third Party, Fire and Theft

Third Party, Fire and Theft insurance covers loss of or damage to the insured vehicle as a result of fire or theft I addition to third party insurance described above. The premium rate for the coverage is 75 percent of the premium charged for comprehensive insurance and is favored by consumers who wish to save on premiums and still enjoy wider coverage than third party insurance.

4.   Comprehensive

Comprehensive insurance is the widest form of cover available and caters for ewer vehicles those under hire purchase or finance. As the term ‘comprehensive’ suggests the scope of cover is for any loss of or damage caused by specified perils which includes accidental collision or overturning including collision or overturning consequent upon wear and tear or mechanical breakdown. The policy comprises two session: one covers loss of damage to the insured vehicle and the other covers third party liability arising from the use of vehicle.

Private Car Comprehensive Insurance

Scope of Cover:

Section A-Loss or Damage to the Vehicle caused by:-

• accidental collision or overturning

• collision or overturning caused by mechanized breakdown or wear and tear

• impact damage caused by falling objects provided no flood, typhoon, storm, volcanic eruption, earthquake,  

         landslide, subsidence or other convulsion of nature is involved.

• fire, explosion or lighting,

• burglary, housebreaking or theft,

• malicious act,

• when in transit including its loading or unloading by:

                                 i. road, rail or inland waterway

                                ii. direct sea route across the straits between the island of Penang and the mainland

Section B-Liability to Third Parties Causing:

a.   death or bodily injury to any person for unlimited liability

b.   damage to property as a result of an accident limited to RM3 million any one claim

Main Exclusions,

• death or bodily injury to any passenger being carried for hire or reward or to a person where such death or injury arises out of or in the course of employment by the insured or his authorised driver.

• Loss, damage or liability arising from flood, typhoon, hurricane, storm, tempest, volcanic eruption, earthquake, landslide, convulsion of nature is involved.

• Loss, damage or liability if the vehicle is used for any motor sport or competition (other than measure hunts), reliability trials, hill climbing test and allies.

• Claims, legal costs and expenses outside Malaysia, Singapore or Brunei.

Policy Excess

An excess is the first amount that must be borne by the insured in the event of a claim. Imposing a policy excess will avoid small (petty or frivolous) claims which are expensive to administer. An excess also acts as a deterrent to ensure the insured acts as if he was uninsured to prevent a loss since he will have to bear the first potion of the claim.

Compulsory Excess – Endorsement 2(f)

In addition to the policy excess, an additional excess of RM 400 will apply in the event of any claim (other than fire or theft) arising under Section A of the private car comprehensive policy if the vehicle is being driven by any person who is:-

• under the age of 21 years

• the holder of a provisional or probationary driving licence

• not a named driver in the policy

•  the name driver under the age of 21 years and/or holder of a provisional or probationary driving licence.

Commercial Vehicle Insurance

The scope of coverage is similar to private car insurance described earlier except for two additional exclusions, namely 1. Damage caused by overloading or strain; and

2. Damage caused by explosion of any boiler forming part of or attached to or on the insured vehicle.

Liability to Passengers 

Liability to passengers is not compulsory in Malaysia EXCEPT for: -

• Passengers carried for hire or reward (affects public or private busses, coaches or taxis) or

• Passengers carried by reason of or in the pursuance of a contract of employment with the insured (eg. Employees carried in their employer’s vehicle).

In this regard, commercial vehicles particularly bus and taxis which carry passengers for hire or reward must have compulsory insurance to cover liability to passengers for death or injuries sustained while travelling including entering or alighting from the vehicle.

Unlike private car policies, a commercial vehicle policy does not include the following policy exclusion: ‘death or bodily injury to any passenger being carried for hire or reward’ under third party liability section.

However, the commercial vehicle policy excludes liability to any person in the following circumstances: -

• Death or bodily injury to any person where such death or injury arises out of and in the course of the employment of such person by the insured or his authorised driver. For example, bus drivers’ conductors or lorry attendants are more appropriately covered by workmen’s compensation or employer’s liability insurance instead of motor insurance and

• Death or bodily injury to any person being carried in or upon or entering or getting on to or alighting from the vehicle unless the person is required to be carried in or on the vehicle by reason of or in pursuance of his contract of employment with the insured his authorised driver and/or the person’s employer. For example, an employee of the insure being carried as a passenger in the employer’s vehicle.

Motor Trade

A motor trade insurance policy is also referred to as ‘road risk’ insurance. It is taken out by motor traders who are engaged in the business of manufacture, repair and dealership of motor vehicles. A motor trade policy provides indemnity only while the motor vehicle is on the road or is temporarily ganged during the course of a journey anywhere within the geographical boundaries and while on the business premises of the insured.

For example, a ‘motor licence’ or motor trade plate is required for each motor vehicle traded or a general licence may be taken out for all vehicles in the rider’s custody as compulsory insurance for road risk is required if the vehicle is used on a public road.