Insurance is a crucial part of any good financial planning. Without sufficient protection offered by insurers, it is easy to fall into financial ruin if even a person’s savings are substantial.

Malaysia’s insurance and takaful penetration rates however are dismally low with only 54% of Malaysians having any form of insurance coverage. This is especially overrepresented in the lower-income populations.

According to a paper by the central bank, BNM, there are a few reasons for this. Core ones include low productivity and the limited geographical reach of the agency network, in addition to the focus of bancassurance channels on products targeted at affluent customers.

In 2018, two more factors were identified – the first is that the industry focuses on products with savings and investment elements that are complex and unaffordable. Secondly, there is a proliferation of products packaged with add-on benefits that may not provide meaningful protection.

In short, insurance and takaful products here are unaffordable, inaccessible, and riddled with unnecessary “benefits”.

Malaysia has also been plagued with flash floods during the monsoon season for the past decade, as a result of climate change.

In recent years, it has only gotten worse, with the flash floods of end-2021 resulting in deaths and destruction of property and vehicles amounting to US$1.4 billion.

All these in tandem, have made the need for insurance all the more necessary for individuals across all life stages.

Meeting the needs of the lower-income

Earlier this year, the central bank of Malaysia, Bank Negara Malaysia (BNM), issued a discussion paper on a Licensing Framework for Digital Insurers and Takaful Operators (DITOs).

The framework aims to license new DITOs to encourage digital innovation in the insurance and takaful sectors, and to better meet the needs of the under and uninsured in the country.

Tune Protect’s Rohit Chandrasekharan Nambiar, Group Chief Executive Officer, hopes that BNM’s focus on financial inclusion via its digital insurance license will see more insurers reach out to the underserved markets, and open new insurance and takaful market segments.

“With the framework, we also foresee that new-age insurance players will take the opportunity to up their game by adopting new technologies in the market. Affordability, ease, and convenience in the purchase, claims and servicing journey can be made possible through digital, and this, in turn, will encourage consumers to subscribe to insurance.”

The Malaysian insurance industry is already competitive with over 20 insurers, just in the general insurance space, says Rohit. However, he feels that the industry has not been able to significantly boost insurance penetration, especially beyond compulsory insurance.

He posits that it is very important for new players to open new markets rather than purely competing in the same space, and to help address the low insurance literacy rates.

Challenges in the digital insurance space

The financial service sector generally has a high barrier of entry, says Sue Wan Wong, Partner, Corporate, Commercial and Securities practice, Wong & Partners, member firm of Baker McKenzie International.

“Incumbents have the advantages of holding a license or approval through a presence that has been built over a long period of time, and often times with shareholders that can support its growth and operations. There is also a deep bench strength within these organisations.”

Wong went on to add that insurtechs have a lot to address – fundraising; talent pool; growth plans (and profitability), and regulatory compliance, among others: “Obtaining the requisite license, approval or registration requires the insurtech to check all these boxes; and it is not a sequential process.”

She opines that even a mature insurtech will find it a challenge to have all the requirements met immediately upon approval being given to commence operations as a digital insurer/takaful operator.

With that said, the ability to gain a footing in the market through the foundational phase is welcome as it provides incumbents with the assurance that the playing field will be leveled when the DITO space has “matured”.

This approach, says Wong, is consistent with the digital bank licenses and “not dissimilar” from the approach used for digital banking in Singapore.

On the other hand, Rohit opined that “the talent pool is stretched in the market” – existing insurers are competing for the same resource, and bemoaned the dearth of talents in Malaysia in the areas of digital, data, cybersecurity, governance, and valuation actuaries, which he feels may result in a delay in achieving the overall objectives of the framework.

“BNM needs to ensure they are able to fast-track approval for the adoption of new technologies and operational models for existing players, to ensure a level playing field.

“This would benefit both DITOs and existing players as the outsourcing and cloud engagement processes are tedious, and would impede the speed at which new tech and products can be rolled out to the public”, he added.

The insurtech space

According to Rohit, there are two types of insurtechs in the market – one comprises tech providers providing services such as automated billing, claims, underwriting, and distribution services, among others.

The other type of insurtech comprises traditional insurers, who are often plagued by legacy issues and which are “heavily driven by the traditional agency model”.

“While most insurers are allocating funds to invest in insurtech now, most are still taking small, incremental steps. They tend to focus on customer experiences such as self-service options, mobile apps to purchase and claim directly, rewards platforms embedded into consumer’s lifestyles, and internal operations such as RPA, AI, Chatbots, and IoT.”, he shared.

Insurtechs in ASEAN

Nevertheless, we’re seeing an increase in insurtechs and their investors in the Asia Pacific.

Last year, S&P Global Market Intelligence reported at least 335 private insurtechs operating in the region, with about 122 of them disclosing US$3.66 billion in aggregate capital raised via private placement deals. Of these, 18%, or, 67 insurtechs, were operating in ASEAN.

According to Rohit, ASEAN presents a massive growth potential because of the low insurance penetration rate (1%-3%), and a growing middle class that’s digitally savvy and increasingly health-conscious.

Rohit feels that overall, Malaysia is still lagging in this area as compared to its global counterparts:

“The opportunities are aplenty for digital insurers and insurtech players to address the gaps by offering affordable products, improving product accessibility by leveraging digital, and easing the complexity of products for customers to better understand what they are signing up for. Malaysia is also advantageous for investors due to its cost arbitrage, location connectivity, and the availability of talent.”

Rohit’s advice is not dissimilar to what some market research houses say.

For one, EY advises that players increase digitalisation, and seek to offer personalised services. Players should also approach product offerings in a simple, flexible manner with subscription models too.

Bain, on the other hand, has found that amidst the backdrop of the diversity of the Asia Pacific, insurers that prosper will venture into markets that align with their core strengths. It stresses the importance of digital distributions, ecosystems, and better customer experiences, in line with the digitalisation trends in SEA.

How will the proposed framework benefit Malaysians?

Rohit shared that the framework will allow industry players to become more competitive by introducing more innovative insurance solutions for the rakyat by offering more affordable, accessible, and easier-to-understand products and services that are “bite-sized” and hyper-personalised for the underserved segments of the market.

Although Malaysians are more aware of the need for insurance because of natural disasters and the pandemic, strangely, this has not translated to an increase in insurance penetration rate.

However, he has hope that there would be a higher uptake when more players are in the market. This is because more competition would come with more awareness and spending as providers would naturally roll out more marketing and promotional campaigns that come with educational aspects to woo the underserved segments, primarily those from the bottom 40% (B40) of the population.

In fact, according to Rohit, Tune Protect itself is “more than ready to serve the rakyat” with its own set of offerings planned for this segment.

“We need to start somewhere, and the framework can be a good starting point for us as industry players, and for the rakyat too.”

 

Featured image credit: Edited from Unsplash