Life Insurance Malaysia 2017 Updates

Affordability and accessibility remain two of the biggest challenges for insurance companies when it comes to raising the life insurance penetration rate from between 54% and 56% at present to the targeted 75% by 2020, industry players say.

Kamaludin Ahmad, the CEO of Maybank Ageas Holdings Bhd, the parent company of Etiqa Insurance Bhd and Etiqa Takaful Bhd, tells The Edge that despite rising awareness of the need for insurance among the lower-income group or the bottom 40% of Malaysian households (B40), most of them choose to lapse their life policies when other immediate needs arise.

Based on statistics, about half of new policies in this category lapse in the first year and should this trend continue, the insurance penetration rate is unlikely to improve.

Kamaludin says Etiqa understands the challenges faced by the lower-income group and has introduced affordable insurance and takaful plans, such as Mutiara Plus, that provide comprehensive coverage for as low as RM10 per month. However, as Mutiara Plus is a group takaful plan, it is not considered in the computation of the nation’s insurance penetration rate.

“For example, RM100 per month can be very challenging for a lot of individuals in this group, which is why we have Mutiara Plus, which can be available for as low as RM10,” he adds.

According to Kamaludin, the plan is a group policy that is distributed through corporations to reduce administrative costs and help provide more affordable coverage. Etiqa also tries to increase consumers’ access to life insurance policies via the internet, Pos Malaysia Bhd’s outlets and Maybank branches.

“But it’s very hard to sell insurance through the internet. Not everyone is comfortable with buying something online for RM2,000 to RM4,000 every year. For mandatory products like car insurance and small items like travel insurance, it’s a bit easier. It also has to be affordable and a product that is easy to understand like term life insurance or takaful. We have put a lot of effort in promoting all of them but despite our success, we are still learning every day.

“Similarly, if we were to sell via Pos Malaysia outlets and even Maybank branches, we have to ensure that the signing-up process is simple,” Kamaludin says, adding that Etiqa finds that the distribution of products through corporations helps to simplify the signing-up process for consumers.

Gibraltar BSN Life Bhd, a life insurance company owned by the US-based Prudential Financial Inc and Bank Simpanan Nasional (BSN), concurs with Etiqa on the challenges faced by industry players in raising the penetration rate in the wider segment of the population.

Says group CEO Rangam Bir, “We will need to leverage our partnership with Pos Malaysia and BSN to give the B40 access to our policies at an affordable price in order to reach the 75% target by 2020.”

He highlights that such partnerships are important to reach out to the second-tier cities and rural areas.

One of the products available at Pos Malaysia’s outlets is Pos Bestari, which is a comprehensive life protection plan with savings and comes complete with guaranteed cash payouts and maturity benefits for up to age 88. It can be obtained for as low as RM1.67 per day.

Note that the average Malaysian earns about RM2,463 per month while the nation’s median income is RM1,703 per month, according to the Salaries & Wages Report for 2016.

“If you look at what RM100 per month can buy in a life insurance or investment link policy, it’s not a lot. I would say that it’s not sufficient as coverage for most people but a lot of the lower-income group would struggle to pay RM100 per month consistently and I understand their situation. But we have our responsibility to ensure that our customers maintain their policy and not lapse it,” says an insurance agent.

“This is why most of our customers are from the middle and upper-income groups. It’s not that we don’t want to sell to the B40 but if I were to sell something that’s too expensive, it would be unfair to them. Similarly, if I were to sell something that’s affordable to them, they might look at the coverage as insufficient and insignificant.”

Prudential Assurance Malaysia Bhd CEO Gan Leong Hin, however, points to a lack of awareness and knowledge, and failure to prioritise as the key contributors to the sluggish growth of the insurance penetration rate in the last couple of years.

“These three factors are inter-related. There is a general lack of awareness and knowledge of the importance of having adequate insurance protection and what type of insurance one should get. When awareness and knowledge is low, very often, insurance becomes a non-priority,” Gan says in an email exchange with The Edge.

“As an industry, we need to play our role to increase consumers’ awareness and understanding of insurance and financial planning matters so that they understand the importance of financial protection and make informed decisions.”

On the findings of a survey - consumers want more affordable insurance coverage, he says, “Insurance is about protection for the future. The amount of coverage you buy today may not be enough in the future and that’s why we always encourage our agents to have an annual review with their customers. While affordability is important, we believe that consumers should approach insurance from a coverage perspective (the level of protection they require based on their financial needs and goals) and not how much they can afford (at least not as the first question).”

Gan believes consumers need to be educated constantly so that they can make informed decisions on their purchase of insurance products.

Nonetheless, as part of the insurance company’s corporate responsibility initiatives, Prudential is offering PRUkasih, a fully sponsored protection plan for urban low-income households, which provides temporary financial relief to help them cope with the sudden loss of income due to an illness, accident or death.

Can insurtech fill the gap? - In order to reach the markets that are not covered by agency distribution, Gho Han Jaa, chief marketing officer and pricing officer of Manulife Insurance Bhd, sees hope in direct channel products and insurtech.

“To promote direct channel and in line with the objective of the LIFE Framework to diversify distribution channels for insurance products, we launched a website in June that allows consumer to purchase simple term life insurance.

“However, we also understand that there are certain solutions from fintech companies that could accelerate the growth of this channel and help it constantly pursue opportunities that arise,” Gho says.

Prudential’s Gan also thinks that with more options, it would be easier for consumers to access and purchase insurance products, eventually raising the penetration rate in Malaysia.

“In line with that, we believe in providing our customers with the widest choice to access our products. Hence, we have a multi-channel distribution network, which includes agency, bancassurance, direct or online, financial advisers and brokers,” he says.

Maybank Ageas’ Kamaludin agrees but says the lack of innovative solutions provided in the insurtech space has led to stagnant progress in an area that is supposed to be forward- looking.

“If you look at the insurtech players, a lot of them are on the direct channel platform as well as aggregators, but at Etiqa, we already have that. Then, there is telematics but it also has its challenges in terms of privacy. If we see solutions that are in line with what we are doing with some improvement, we will definitely be interested to look at them,” he says of the insurtech space.

While Kamaludin is optimistic that insurtech will help grow the online distribution channel, he says it still has a long way to go. “Even for us, despite the strong growth seen in the online space for general insurance and takaful products, it [online channel] only commands about 2% of total revenue for us. I think even on the back of strong growth, it will probably only capture about 5% of total revenue by 2020.”

PolicyPal, a Singapore-based insurtech player, however, points to the complexity of insurance products and the industry for the slow growth in insurtech. Its founder and CEO, Val Yap, says insurance is a 100-year-old industry with regulators, reinsurers, insurers, brokers, agents, independent financial advisers and customers.

“To disrupt such a complex market is not easy. Most insurtech players choose to focus on one value chain and do it well. We have seen that some insurtech players in the UK and the US have moved or expanded their value chain from brokers to insurers. This is a bold and interesting move, which takes a lot of funding to get the capital requirements from the regulators,” she adds.

Yap also cites the involvement of many stakeholders as one of the hindrances to swift progress.

“PolicyPal has to share its thought process and flow with insurers and regulators, and let them know how we are shaping the new distribution process. Insurance itself is a complex product and we don’t want to take over the role of the agents. We started distribution of general insurance and direct purchase insurance on digital channels as these are the products that agents don’t really focus on. We will be launching a hybrid model where we will be sharing policy information and pass on the user to the insurers for fulfillment,” she says.

The insurtech player is also optimistic about the segment’s growth potential, saying that while agency channels will continue to be relevant in the next 5 to 10 years, it will shrink with more people moving towards digital.

Yap sees high growth in the insurtech space as the generational shift to the digital era gathers speed.

Collaboration, not competition - Gibraltar BSN’s Rangam says there is a need to collaborate with both the traditional and digital platforms to reach out to the wider segment, and eventually increase the insurance penetration rate.

“I think one of the advantages that Gibraltar BSN has is our partnership with both Pos Malaysia and BSN. Collaboration with Pos Malaysia is important, given the experience it has in e-commerce and delivery to end-consumers. Its large retail consumer base will also give us an advantage, where we can leverage its presence to provide an innovative digital solution.

“We are still exploring with different insurtech players and by combining their strength with ours, the affordability and accessibility concerns can be overcome,” he says.

Despite the importance of insurtech, it will not replace agency channels as insurance is a product that needs to be sold face to face, he adds.

“While online and mobile solutions will help increase the penetration of the wider segment, customers still need the right kind of advice for a complex product like insurance. There is a whole range of different needs in terms of protection and all these require the role of an adviser, which will be filled by the agents. The balance scorecard that was introduced by the regulators will also help improve and enhance the reputation of agents,” Rangam says.

Similarly, PolicyPal believes the company is introducing an alternative channel rather than replacing the agency force. “Insurers view us as partners where we help educate the consumers, especially the digital savvy ones, on insurance and coverage gaps. This in return will help ensure that customers know whether or not they are adequately covered. Their agents might also use PolicyPal as a validation point when they meet their customers to review their insurance portfolio,” Yap says.

Prudential’s Gan believes the process of purchasing a life insurance policy would appear overwhelming, especially to someone who is unfamiliar with the concept. “The role of an insurance agent is to help you plan and choose the right solution based on your financial goals. Technology is an enabler in this agent-customer relationship where the process of purchasing an insurance plan is simplified and enhanced,” he says.

In order to engage more frequently with customers, Prudential also aims to leverage technology to empower its customers to make informed decisions on their health and well-being.

“We introduced myDNA — the first mobile nutrigenomics health solution developed by Asia’s leading genetics laboratory, Prenetics Ltd — which provides valuable information to empower individuals to understand their health needs and wellness profile. It’s offered to customers who purchase any of our protection plans for death and critical illnesses with a minimum coverage amount,” Gan says.

Similarly, AIA Bhd has its AIA Vitality programme while Great Eastern Life Assurance (M) Bhd has its Live Great programme.

Gibraltar BSN’s Rangam shares that the company is looking at this area and is working on chatbots to help increase the response time to queries from its customers and potential customers on its social media and other online platforms.