Grab Unbanked Indonesian

The majority of Indonesians, especially those living in rural areas, remain unbanked or have yet to become part of financial inclusion. Unbanked means not having access to financial products and services such as transactions, payments, savings accounts, credit and insurance. Unbanked citizens account for an estimated 66 percent of the country’s 275 million population.

Greater Financial Inclusion - given the large number of people with no financial accounts, breakthrough efforts must aim for greater financial inclusion. It has been proven that financial inclusion can help the poor and most vulnerable in society break out of poverty, reduce inequality, develop entire communities and drive economic growth. One of the breakthrough ways is by utilizing financial technology (fintech) to expand financial inclusion to reach unbanked people, with a grassroots approach.

Fintech aims to compete with traditional financial methods in the delivery of financial services. It is an emerging industry that uses technology to improve activities in finance. At its core, fintech is utilized to help companies, business owners and consumers better manage their financial operations, processes and lives by utilizing specialized software and algorithms that are used on computers and, increasingly, smartphones.

GRAB - Indonesian technology company Grab, one of the biggest names looking to make a mark in the segment, is engaged in expanding financial inclusion by adopting a grassroots strategy.

Grab expanded into the fintech space in 2017, starting with the acquisition of an online-to-offline business, Kudo or now known as GrabKios. At the beginning, Grab focused on empowering traditional mom-and-pops stalls or known as warung by enabling them to purchase the goods for their stalls via the app and also provide various digital products.

Grab plans to empower its agent network to bring financial services to every Indonesian in every corner of the country. It’s an exciting space with unexplored opportunities, especially since according to OJK [Financial Services Authority], 51 percent of the adult population in Indonesia does not have a financial account.

Empowering traditional sellers, helping the unbanked - Under the grassroots strategy, Grab empowers traditional sellers and helps the unbanked gain access to financial products and services. In implementing the strategy, Grab has found that this is a mammoth challenge, given that technological and financial literacy rates are relatively low and basic infrastructure for internet connectivity is lacking, particularly in rural areas.

For Grab, the solution lies in an open ecosystem approach, and a grassroots strategy that leverages a ubiquitous fixture in Indonesian society – warungs (kiosks) found in every neighborhood of Indonesia.

Cooperatives and Small-and-Medium Enterprises (SMEs) Minister Teten Masduki stated that there are 3.5 million traditional warungs in Indonesia, making it an ideal catalyst to drive financial services.

Currently , millions of GrabKios agents available in more than 500 cities across Indonesia are helping the unbanked and underbanked society in Indonesia to access financial services. It’s available in their neighborhood, and also local markets. They can enjoy the services anytime, at their convenience.

GrabKios enables traditional warung owners and also individuals to offer digital and financial services to their community, including remittance to all banks in Indonesia, electricity and insurance (BPJS) payment, phone credit top up, bill payment, gold savings and insurance protection products to customers that they can purchase via the preferred agents.

Warung Operator - equipped grocery store with the ability to extend financial and digital products to customers. With GrabKios, operators have been able to sell digital products, including phone credit top-up and digital financial transactions such as remittance to customers. This service helps more customers, most of whom are sellers. They can directly transfer money from their daily income easier without having to go to a bank, which is quite far from the market.

Financial inclusion for driver-partners - Grab pushes forward on its financial inclusion mission, it is also paying special attention to its own driver-partners. Tenggara and CSIS Research in 2020 also found that being a part of the Grab ecosystem improves partners’ access to financial services. As many as 19 percent of GrabBike and 12 percent of GrabCar driver-partners opened their very first bank account when they joined Grab. More importantly, earning opportunities offered by Grab have enabled many of them to start saving money on a regular basis.

Specifically, 75 percent of GrabBike partners and 69 percent of GrabCar partners now regularly save money in the bank, with average savings of Rp 890,000 and Rp 1.4 million a month respectively.

In addition, 46 percent of GrabBike partners, 34 percent of GrabCar partners and 50 percent of GrabFood partners reported that they had better and easier access to lending after joining Grab, as financial institutions trust them more. This gives them the means to take loans to further grow their business or invest in new motorcycles or cars.

Since 2018, Grab has rolled out microloans, insurance protection, and other financial services that are tailored to the unique needs and circumstances of its driver-partners.

By understanding our driver-partners’ historical earnings and driving patterns, we are able to offer suitable financing options that are more accessible for them. Based on the financing products we have extended, which many of our partners use to tide through unexpected healthcare needs or education payments, we estimate that 1 in 4 of the recipients would have been turned down by traditional banks because they didn’t meet the minimum income threshold. Many more would have been turned down given the complex documentation required.

A focus on inclusivity - financial and digital inclusion are broad challenges that affect millions of Indonesians. But for certain segments of the community, like the differently abled, the challenge is twofold.

In December 2020, Grab formed a partnership with the Communications and Information Ministry and the Indonesian Inclusive Connections Community (Konekin). This program opens opportunities for persons with disabilities to receive a series of training to equip them to be able to find income opportunities as GrabKios agent partners.

The COVID-19 pandemic has been hard on everyone, but it can be especially challenging for those with disabilities, who may have already faced stigma in finding job opportunities even before the pandemic. The program is part of our commitment to create a more inclusive platform. With GrabKios, we hope that many differently abled people will be able to find business opportunities so that they can #TerusUsaha [find possibilities] and survive amid the pandemic through digitalization.

It’s just the beginning - Looking ahead, Grab is just at the cusp of its financial inclusion mission. The importance of collaboration to achieve financial inclusion in the country motivates us to invest in LinkAja and we will continue to work closely with our partners including OVO and other companies to help move the needle in a meaningful way,” Anan added.

One financial inclusion challenge that the company has already started to make inroads on is low insurance ownership, with insurance penetration (total premiums/GDP) at just nearly 3 percent. More than 80 percent of Indonesians live on less than US$ 4.50 per day, with regular insurance products unaffordable to many.

Last September, Grab introduced the Hospital Cash Cover product, which provides a lump sum payment per day for hospitalization, between Rp 150,000 and Rp 250,000 per day. Premiums start from an affordable Rp 9,900 / month (will depend on ages and chosen plan) with a total benefit of Rp 29 million coverage.

Earlier this month, Grab also launched Community Cover, its first critical illness insurance product, in partnership with PFI Mega Life. Users will pay a monthly premium to be covered for 36 Critical illnesses including cancer, heart disease and stroke, in which a lump sum up to Rp 100 million will be paid out when they are diagnosed. Community Cover has several innovative features, including a premium structure that is not fixed. Users pay a competitive premium of Rp 20,000/month to be part of the program, but with a cashback component, they can be rewarded with monthly discounts depending on the number of participants in the program and the number of claims in the prior month.

That said, Grab’s work is hardly complete. Improving the quality of life for Indonesians means continuously iterating its products and checking in with customers on what can be done better.

Misselling Investment-linked Indonesia

The Financial Services Authority (OJK) has held a meeting with several insurance companies and representatives of the Indonesian Life Insurance Association (AAJI) to ask for clarification regarding increasing customer complaints over unit-linked insurance plans (Ulips).

Disputes Investment-linked Product - The OJK says that if insurers and their customers fail to reach agreement on disputes involving Ulips, it can assist in mediation to resolve the problem. If it is proven that there is a company error in selling insurance products, OJK will ask the company to fully compensate the customer for losses," said Mr Riswinandi, chief executive of the Non-Bank Financial Industry Supervision Department of the OJK.

In addition, OJK also calls for the evaluation and improvement of the marketing model for unit-linked products and stresses the importance of product transparency.

"It is also necessary to ensure that consumers correctly understand the benefits of the product, the costs charged, investment risks, claim procedures, dispute resolution, and the rights and obligations of other policyholders," said Mr Riswinandi. The sales process is to be documented with recordings.

OJK also urged customers to understand the profile and risks of unit-linked products. Taking a tough stance, the regulator plans to blacklist errant insurance agents who violate regulations governing the sale of unit-linked products.

Misselling Investment-linked Product - Customer complaints are mainly related to investment-linked insurance products, largely revolving around mis-selling, the decline in investment returns from Ulips, and difficulty in making claims.

The head of the OJK Consumer Protection Department, Mr Agus Fajri Zam, said, “"Business actors must ensure that agents do not ask consumers to sign blank insurance application forms.”

He points out that there are also some insurance salespersons who lack the certification for selling Ulips and do not understand well the unit-linked products that are marketed to prospective policyholders.

MSIG-Oyen Pet Insurance

Oyen Sdn Bhd has created a digital-first insurance platform with MSIG Malaysia partnering to underwrite pet insurance policy. The platform allows pet owners to digitally buy and manage medical insurance for their cats and dogs, quickly and conveniently.

Medical costs for pet care can be surprisingly large, unexpected and unwelcome expense for many owners should their pets get ill or suffer an unfortunate accident. Insurer offers lower barrier to entry and offer a service that could provide pet owners with reassurance and peace of mind during these turbulent times.

Pet coverage includes RM8,000 in vet medical fees, claimable in the event of illness or accidental injury; burial or cremation cost of up to RM1,000; third-party liability coverage of up to RM50,000; and reimbursable visits to registered vet clinics in Malaysia.

Customers can get insurance coverage within minutes and submit their claims online. 

Malaysia Life Insurance Growth Year 2020

The life insurance industry recorded a slight decline of 3.2% in new business total premiums to RM11.4 billion last year, from RM11.8 billion in 2019. According to LIAM, the industry's overall new business sum assured also fell by 7.2% to RM437.2 billion in that period from RM471.3 billion in 2019.

The decline in overall new business total premiums and new business sum assured was attributed to a slowdown in the business environment due to the Covid-19 pandemic and restrictions on face-to-face selling during the movement control order (MCO) and conditional MCO (CMCO) imposed in the Klang Valley and other states in the country.

However, the association said total new premiums of investment-linked policies edged up 1.2% to RM5.01 billion in 2020, while traditional and group insurance fell 10.3% and 3.5% respectively. The traditional policies’ new business sum assured improved by 7.2% to RM23 billion in 2020. In contrast, the new business sum assured for investment-linked policies fell 21% and group policies registered a dip of 2.2%.

The number of new policies shrank by 7.1% to 1.2 million units last year from 1.3 million units in 2019. Traditional and group new policies increased by 13.1% and 5.3% respectively, while investment-linked new policies fell by 20.7%.

This trend showed that during these unprecedented times, consumers were generally more mindful of their spending and tailoring their purchases to smaller traditional policies (lower protection) due to the Covid-19 crisis, which might have affected their financial situation.

Investment-linked insurance which is greatly affected is an insurance plan which has more unique features and requires face-to-face interaction by agents to explain these features and ascertain its suitability before an investment-linked plan is recommended. 

The pandemic had resulted in companies becoming more explorative and innovative in enhancing their value propositions by developing plans that suit the needs of customers. A number of insurers introduced new plans with low premiums via the direct channel platform. Online products are available on respective insurers’ websites, including medical insurance and critical illness protection plans.

Policyholders’ persistency rate increased, despite the pandemic, from 94.5% in 2019 to 95.6% in 2020. Policyholders’ discontinuing their insurance coverage in 2020 was the lowest (sic) in the last five years despite the pandemic.  

EPF WIrhdrawal - Maximum Age 100

The Employees Provident Fund (EPF) has clarified that members will continue to earn dividends for the remaining portion of their EPF savings up to age 100. The retirement fund said that an old statement regarding the maximum age of 75 years for EPF dividend payment currently circulating via multi-media is outdated and no longer applicable.

The EPF reiterated its statement dated Nov 3, 2016, that effective Jan 1, 2017, members will continue to earn dividends for the remaining portion of their EPF savings up to age 100.

This was introduced following an amendment to the EPF Act 1991 to ensure that members who choose to maintain a portion of their savings with the EPF after retirement will continue to benefit from the compounding effect of annual dividends until their EPF savings are fully withdrawn.

"The EPF will inform members prior to transferring any unclaimed savings when the member reaches age 100. Any claim after the transfer can be made through the Registrar of Unclaimed Money. We urge members to be cautious about misleading or unsubstantiated information received through social media platforms and refrain from circulating them," it said.

AXA Plans To Exit Malaysia - Again

Italian Generali insurance is reportedly in negotiations to acquire several business assets in Malaysia from French rival AXA, for a sum of around €300 million (SG$478.3 million). Generali had been planning to buy several businesses from AXA in Malaysia worth around €700 million, but instead opted to acquire AXA’s non-life insurance operations in the country.

If the deal pushes through, it could make Generali the second-largest P&C insurer in Malaysia.
Asia is a fast-growing market and a focus for Generali. Last month, Generali CEO Philippe Donnet said the company had an M&A war chest of over €2 billion, and was looking at various opportunities while exercising “discipline”.

Meanwhile, in 2019, AXA and its local partner Affin Bank Bhd were reportedly exploring various options, which included a potential sale of their life and general insurance joint ventures.

Term Assurance Return Of Premium

Having adequate life insurance protection in place is a necessity in today’s day and age. It ensures that the dependent family members are not left in the lurch in case of the policyholder’s sudden disability or demise. That said, it’s always wiser to keep insurance and investment separate. As such, it might be a better idea to go with a standard term insurance policy than traditional life insurance products like endowment plans that offer relatively lower sum assured at higher premiums. The funds saved by opting for a term insurance policy can be invested according to one’s returns expectations and risk tolerance to earn higher overall returns.

However, term insurance products themselves can be of different types. There are plain vanilla term plans and also a few variants that return the premium at the end of the policy tenure. So, should you go for them? Let’s discuss the features of a term plan and a return of premium term plan (TROP) to find the answer.

Term plan & term plan with return of premium - A term plan provides life cover for a specified number of years. The premium for a term plan is determined based on the age of the insured and the policy cover size among other factors. These premiums are usually lower than most other life insurance products as there are no maturity benefits or investment expenses for the insurer involved. Term plans come in different variants based on the type of premium and claim pay-outs.

Typically, you can choose the premium payment frequency to be monthly, quarterly, yearly, lump-sum at one time or for a certain period. Similarly, there are different pay-out plans too, like a fixed monthly pay-out plan, increasing monthly pay-out plan, lump-sum payment, etc. You may choose a term plan based on both these factors as per the needs of your dependent family members. You can also include rider options to your term plan at the time of purchase to make it more comprehensive, though this could make it more expensive.

A term plan with return of premium (TROP), on the other hand, is a term plan with an additional feature of a survival benefit. This implies that if you, as the insured, survive till the maturity of the TROP, you will get back the entire premium. You may also get a loan against a TROP policy depending on its paid-up value and subject to applicable terms and under the policy—something which is not possible with a standard term plan.
You can also pay the premiums for a TROP in instalments or at one shot at the beginning of the policy. However, the premium for a TROP is higher than a standard term plan for the same sum assured. This is because the cost associated with the TROP, be it the cost of investing the premiums or administering the policy, is higher than a vanilla insurance policy.

Which one should you opt for - The TROPs are often advertised as “free life policies” to attract buyers by showing that the insured doesn’t need to pay anything if he survives the policy tenure. However, the reality could be slightly more complicated. In fact, TROPs usually involve much bigger premium obligations than a term plan of identical cover size. Also, the actual value of the premium amount returned at the end of the policy term under a TROP will be much lesser due to inflation. As such, the difference in premiums for a term plan and a TROP with equal sum assured could instead be invested in instruments aligned with the insurer’s risk appetite to build a much bigger corpus.

It is not uncommon for people to invest in TROPs as a last-minute tax-saving measure without putting much thought into it. It might be a better idea to purchase a standard term insurance product for an adequate sum assured at lower premiums. The excess funds can be invested in ELSS mutual funds, tax-saving FDs, PPF, NPS or VPF in line with your risk appetite and liquidity requirements to build a bigger corpus while also helping you to exhaust the tax-deduction benefits at your disposal.