How Will BNM’s Digital Insurance License (DITO) Address Protection Gaps in Malaysia

How Will BNM’s Digital Insurance License (DITO) Address Protection Gaps in Malaysia

by October 25, 2023

In recent years, the insurance landscape in Malaysia has undergone a transformation driven by digital innovation, of which the introduction of Bank Negara Malaysia’s digital insurer and takaful operators (DITO) framework is expected to be a game changer.

The emergence of a new breed of digital insurance and digital takaful products has the potential to address significant protection gaps, enhance financial literacy, and make insurance more accessible to a broader range of Malaysians. 

To explore this topic further, a panel discussion was held during the ‘Fintech Frontiers Conference Malaysia 2023’.

It featured prominent figures in the industry, including Lau Chin Ching, Director of Financial Development and Innovation at Bank Negara Malaysia; Khoo Ai Lin, CEO of Zurich Life Insurance Malaysia; Rohit Nambiar, Group Chief Executive Officer of Tune Protect Group, Yen Ming Lee, Co-founder and Chief Executive Officer of PolicyStreet who was also recognised as the Top Insurtech Startup winner, and moderated by Malek Ali, Founder of Fi Life.

Digital Insurance Malaysia: The Licensing Framework

Lau Chin Ching

The panel discussion titled ‘What to Expect from Malaysia’s New Digital Insurance License’ began with an overview of Malaysia’s upcoming digital insurance licensing framework. 

This framework, set to be released in the first half of 2024, according to Bank Negara Malaysia, aims to reshape the insurance industry in the country. 

One of the primary objectives is to address protection gaps in Malaysia. These gaps are characterised by underinsurance, lack of coverage, and insufficient financial protection for many individuals and families.

The Director of Financial Development and Innovation at Bank Negara Malaysia, Lau Chin Ching, highlighted the importance of this framework in addressing the protection gaps in Malaysia. 

She noted that the country faces underinsurance, underservice, and a complete lack of insurance coverage for specific population segments. 

For instance, the average sum assured for life insurance in Malaysia is approximately 130,000 ringgit, insufficient to provide adequate financial support for families in case of unexpected events.

Protection gaps and underinsurance

Rohit Nambiar

Rohit Nambiar, Group CEO of Tune Protect Group, emphasised that protection gaps in Malaysia are not limited to underinsurance but also encompass the problem of many people not having any insurance. 

He outlined two main issues: first, the challenge of bringing the B40 (bottom 40 percent) income group into the insurance fold, and second, addressing the reluctance of millennials to engage with traditional insurance products due to their perceived complexity and cost.

He pointed out that young Malaysians are more interested in insurance products that align with their lifestyle, such as device protection and travel coverage. 

Traditional insurers must adapt to these changing preferences and make insurance products more relevant and affordable for the younger generation.

Chin Ching further elaborated that addressing the protection gap is essential, especially among the lower-income segments of the population. 

She noted that Malaysia’s insurance penetration rate is approximately 54 percent, indicating a significant portion of the population lacks adequate coverage. 

Financial literacy and affordability also play crucial roles in closing these gaps, as many Malaysians face challenges in managing their disposable income.

Yen Ming Lee, Co-founder and CEO of PolicyStreet, echoes the sentiment that disposable income and differing priorities affect insurance adoption. To bridge these gaps, PolicyStreet adopts a unique approach by embedding insurance policies into various aspects of customers’ lives. 

For example, they provide coverage for food delivery riders, protecting them during work. This approach allows individuals to access insurance without actively seeking it, aligning with the digital era’s consumer behaviour.

The role of digitalisation in closing protection gaps

Khoo Ai Lin (2nd from right) speaking

The panellists unanimously agree that digitalisation is vital in addressing protection gaps and making insurance more accessible. Digital channels enable insurers to engage with tech-savvy younger generations who prefer online interactions and research before making decisions. 

Rohit highlighted Tune Protect Group’s commitment to digitisation, focusing on simplifying insurance products and making them more affordable, particularly for the underinsured segments.

Khoo Ai Lin, CEO of Zurich Life Insurance Malaysia, added that digitalisation allows insurers to tailor policies to various life stages and offer more flexible and affordable options. 

Insurance as a service and embedded insurance are emerging trends that leverage digital technology to provide protection seamlessly throughout individuals’ lives.

Yen Ming also emphasises that digital insurance can address protection gaps by providing coverage at critical points in a person’s life journey. 

For example, insurance can be embedded in food delivery services to protect riders during their work. This approach aligns with consumer behaviour, nudging them toward insurance immediately.

What to expect from Malaysia’s New Digital Insurance license?

Yen Ming Lee (right) speaking with moderator Malek Ali

The discussion then shifts to the expectations surrounding Malaysia’s new digital insurance license. Panellists acknowledge that digital insurance licenses will complement traditional insurers and provide consumers with more options and innovative solutions. 

The licenses are expected to accelerate the adoption of digital insurance by offering a wide range of products and services.

Rohit believed having more players in the digital insurance market would increase consumers’ awareness and understanding of digital insurance. More insurers entering the space will foster competition, driving innovation and affordability.

Ai Lin highlighted that Zurich Life Insurance Malaysia is focusing on the general insurance (GI) space within the digital insurance landscape. They are investing in digital acquisition channels and partnerships to leverage their existing customer base of three million individuals. This strategic approach aims to achieve critical mass for sustainability and traction.

Chin Ching emphasised the need for clarity in regulations and guidelines for digital insurance. The regulatory framework should accommodate emerging technologies and business models while ensuring consumer protection and industry stability.

Yen Ming shared during the panel discussion that PolicyStreet has plans to seek this license and expand its role in reshaping Malaysia’s digital wealth and insurance future.

Challenges and prospects

What to Expect from Malaysia's New Digital Insurance License

The discussion continued by addressing the challenges and opportunities for digital insurance in Malaysia. The panellists agreed that digitalisation is a journey that requires continuous adaptation and learning. Addressing protection gaps, increasing financial literacy, and providing affordable solutions will remain top priorities.

Ai Lin saw the opportunity for digital insurance to enhance customer engagement, leveraging data and analytics to offer personalised experiences and products. 

She highlighted the importance of digital customer journeys and the role of intermediaries in educating consumers about digital insurance.

Yen Ming expressed optimism about the collaboration between insurtech startups and traditional insurers. These partnerships can create a win-win situation, benefiting from the agility and innovation of startups and established insurers’ experience and customer base.

Chin Ching emphasised the importance of responsible digital insurance practices and addressing cybersecurity and data privacy concerns. Bank Negara Malaysia will play a role in ensuring the industry’s stability and consumer protection.

Sustainability and ESG in digital insurance

The panel also discussed the importance of sustainability and Environmental, Social, and Governance (ESG) considerations in insurance products.

Digital insurers have the advantage of being able to operate with minimal paper usage and can emphasise their commitment to reducing their environmental impact. 

Additionally, some digital insurers are exploring ethical insurance options that allow customers to contribute to charities of their choice.

A critical question raised during the discussion was whether customers are willing to pay more for sustainable insurance products. While current paying customers may view sustainability as a “nice to have,” the younger generation considers it a “must-have” when making financial decisions. 

As younger generations gain more purchasing power, their preferences for sustainable and socially responsible insurance products are expected to drive change in the industry.

Looking ahead

The future of insurance in Malaysia is promising, with digital insurance licenses set to play a pivotal role in reshaping the industry. 

By addressing protection gaps, improving financial literacy, and leveraging digital channels, the industry can provide Malaysians better access to insurance products that suit their needs and lifestyles.

While challenges remain, collaboration among insurers, regulators, and technology providers will be vital in ensuring the success of digital insurance initiatives. 

As the industry continues to evolve, Malaysia’s insurance landscape is poised to become more inclusive, efficient, and responsive to the diverse needs of its population.

While we eagerly await the release of the digital insurance framework in the first half of 2024, one thing is clear: the future of digital insurance in Malaysia holds great promise and potential for positive change in the lives of Malaysians.

Watch the full “What to Expect from Malaysia’s New Digital Insurance Licenses?” at the Fintech Frontiers Conference