Insurers could change their approach and improve their offerings through microinsurance - coming up with life coverage with bite-sized premiums. Small-ticket insurance coverage, also known as sachet or bite-size insurance, are non-comprehensive plans that focus on specific needs and come with low premiums and lower cover. Such policies help to boost insurance penetration and, in turn, reduce inequality.
Insurers have to change the mindset that insurance is expensive. Today, if you want insurance only for critical illnesses, it can be provided. You can recover from critical illness and get on with your life, but you will need funds to support your treatment cost. That is where bite-sized coverage helps.
The effects are more pronounced among lower-income groups and micro- and small enterprises, especially when they are disproportionately impacted events such as the death or incapacitation of a breadwinner, or business disruptions.
The growth of life insurance and takaful in the country has been sluggish in the last few years as penetration, in terms of total premiums to Malaysia’s gross domestic product, remained low at 4.8% (Bank Negara Malaysia).
The penetration rate of life insurance and takaful has been hovering at about 54% in the last five years. If you eliminate multiple ownership of policies, the figure drops to 41%. Of the figure, only 4% of households in the bottom 40% (B40) of the population have some form of life coverage.
Even then, the 4% that have some form of protection are not sufficiently covered. The average sum assured in Malaysia is about RM50,000, which is grossly inadequate. On average, the gap ranged between RM100,000 and RM150,000. A family of five will need at least RM553,000 to survive for the next five years if the breadwinner is incapacitated or has passed away.
Of the 50.4% of 16 million working adults aged between 20 and 59, some 7.8 million are uninsured. And of that number, 3.9 million are in the B40 group. The B40 segment is highly vulnerable to financial shocks. But seeing as their income is spent on basic needs such as food and shelter, insurance is not seen as a priority. There is not a compelling motivation to get insurance protection and most only think about it after a tragedy strikes.
Currently, six life insurance companies are offering plans under the Perlindungan Tenang scheme, with premiums from as low as RM3 a day and sum assured of between RM10,000 and RM30,000.
Microinsurance products growth are driven by insurance technology (insurtech) space, which has paved the way for insurers to lower their cost of capital to help fulfil the nation’s aspiration of reducing the protection gap. Insurtech offers bite-sized products, which are very affordable.
These developments also come at an opportune time as medical expenditure in Malaysia is among the highest in the region. About 43% of medical expenditure in Malaysia is covered government hospitals, which translates to about 10% of the country’s GDP, while 38% is out-of-pocket expenditure and 7% is covered insurance companies.
If healthcare cost is no longer sustainable, the increase in premiums is inevitable. This may lead to lapses in the premiums of medical policies and result in more people relying on medical treatment at government hospitals. That is why having sachet insurance for medical needs could lead to sustainable healthcare costs in the long term. Microinsurance products will continue to grow in the near future as people become more aware, are better educated and tech-savvy, and understand the importance of financial protection for themselves and their loved ones.
Innovation is not limited to products but also includes intermediaries, that is, insurance agents. Agents are still the leading distribution channel followed bancassurance, direct marketing and financial advisers. There are about 75,700 life insurance agents and 20,000 bank employees in the industry. Only 25% of the 75,700 agents are working in the field full-time.
One of the initiatives is the balanced scorecard for intermediaries, which sets out a basic structure for insurance companies to remunerate their agents, so as to achieve outcomes that will benefit consumers.
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