Cover Story: Turning the insurance industry on its head

This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on September 18, 2017 - September 24, 2017.
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The insurance technology (insurtech) wave that is disrupting the industry in many parts of the world has arrived on our shores. These platforms aim to provide insurance plans that are cheaper, more transparent, easier to access and even customisable to the needs of policyholders.

Insurtech is being driven by start-ups looking to grab market share from the more established players and large insurers that have embraced the technological advancements because of the growing demand for better products and services. According to Lee Yen Ming, co-founder and CEO of PolicyStreet, the penetration of insurtech companies is in line with Bank Negara Malaysia’s push for a more diverse insurance landscape.

“A common perception among Malaysians is that if they want to buy a life policy, for example, the only way to do so is through an agent. This is not true. On top of that, some agents tend to sell policies with riders, such as critical illness, medical plans and all sorts of products that the policyholders may not even use, but have to fork out a lot of money for,” says Lee.

“The truth is, some agents recommend these riders because the higher the premiums, the higher their commissions. That is what insurtech players such as us aim to change. We want to break down the products to the basics so that consumers only buy what they need, thus saving them a lot of money.”

PolicyStreet is one of the players trying to generate enough demand from consumers to push insurers to introduce innovative products. The company will be collecting data from groups of individuals to gauge the demand for products that are not yet available in the market. Should there be enough demand for a particular product, the company will approach insurers with the data to encourage them to offer that product (see box).

GoBear is one of the few aggregator platforms in Malaysia. Launched in May last year, it provides comparisons for personal loans, credit cards and travel insurance. Comparisons for motor insurance will be available in the fourth quarter of this year.

GoBear was the first company approved for Bank Negara’s financial technology (fintech) regulatory sandbox framework. Iskandar Ezzahuddin, country director of GoBear Malaysia, says there is a lack of insurance aggregator platforms in the country as it is not easy to compare such products.

“Insurance products are not apple-to-apple comparisons. So, we strip them down to their core or ‘bare’ components, hence the name GoBear. This makes the comparisons meaningful and relevant,” he adds.

“Our aim is to empower consumers to do their own research and make their own decisions. The younger generation especially do not easily trust agents, so we step in and provide this unbiased, transparent and simple platform for them to get the products that they need.”

There are currently 14 insurers on GoBear’s platform providing travel insurance, which has a take-up rate of 35%. While the platform features the lowest price possible, some insurers offer even lower prices as part of their online channel strategy.

Iskandar says that before GoBear, there was no easy way for Malaysians to compare travel insurance products. “Travel insurance is not something that people want to spend time looking for. So, what we do is select five key points of the products that we think every travel insurance should cover, such as loss of travel documents and flight delays.

“Afterwards, the consumers can identify perhaps three products that they are interested in and compare their features more in-depth, which is available on the GoBear platform. This makes the comparison process quicker and more straightforward.”

Lee shares his own experience of the difficulty he faced when he tried to engage with his insurance agent. “When I was trying to top up my insurance policy a few years ago, I found out that my agent was no longer with the insurance company. So, I called up the insurer and was told by customer service that it would get another agent to contact me. I waited for two months, but no one from the insurance company reached out to me. Luckily, I was able to get a friend who is an agent for my insurance provider to help me with the purchase.

“I cannot stop thinking about how the industry is riddled with baggage. That is why we started PolicyStreet — to reduce the complexity of the products that are in the market and give people only what they need in bite-sized products.”

Coupled with the liberalisation of the motor insurance industry, the emergence of insurtech companies will force insurers to innovate and introduce more affordable and flexible products, says Junior Cho, head of market management, general insurance and takaful at Zurich Insurance Malaysia Bhd.

“For example, motor insurance has always been standard in terms of its benefits. But now, there is flexibility. Today, cautious drivers can benefit from lower premiums. On top of that, the use of telematics and data analytics can determine more personalised premium ratings,” he adds.

“This is only the beginning. Going forward, we hope to see and introduce more innovative products as a result of the technologies the insurtech companies provide.”

There are several online channels that Malaysians can use to purchase insurance products. Tune Protect, for instance, provides travel, dental, personal accident, snatch theft and car passenger insurance. U for Life, which is insured by Tokio Marine Life Insurance Malaysia Bhd, offers term life, critical illness and personal accident insurance. HLA Touch, which is powered by Hong Leong Assurance Bhd, offers term life, health protection and medical insurance.

In Malaysia, the insurance industry has been a laggard when it comes to embracing the digital wave. According to PwC’s Insurtech: The Road Ahead report released in December last year, the country’s general insurance sector is the third most at risk for disruption, yet local insurers are less concerned about the emergence of insurtech players than their global counterparts.

In other parts of the world, insurtech is no longer seen as a disruption, but a transformative force. New products and services are being developed to meet the needs of a growing and changing consumer base, leveraging the different technologies available such as artificial intelligence (AI), the Internet of Things (IoT) and blockchain.

Sean Wang, chief operating officer at Allianz Malaysia Bhd, says insurers in the country were not worried about insurtech players two to three years ago as they thought the strict regulations would make the industry untouchable. “However, in the last few years, the rapid growth of mobile penetration in Southeast Asia, coupled with the emergence of new digital platforms and shared economies, has presented new ways in which insurance can be distributed and consumed,” he adds.

“With the rise in telematics and big data, there will be more usage-based insurance products or those that are priced dynamically based on individual risk profiles. The industry will also see more distribution partnerships being forged with existing online marketplace players to make insurance more accessible. And of course, insurance aggregators will become commonplace or ‘one-stop shops’ where customers can conveniently compare features and pricing.”

According to Cho, insurtech players are able to address some of the problems in the local insurance industry. This includes simplifying the presentation of insurance products, empowering consumers to make informed decisions when making purchases and increasing the transparency of the industry.

“Most importantly, the emergence of insurtech companies will definitely increase the awareness and penetration of insurance in Malaysia. The overall insurance penetration rate has been in the 54% to 56% range for the last five years, but Bank Negara wants this to reach 75% by 2020. Hopefully, this can be achieved with the help of the insurtech platforms,” he says.

Cho says that on top of simplifying the purchasing and claiming process, insurtech companies are also able to leverage the technology to increase their engagement with consumers. Many of them offer products and services such as online purchasing channels, insurance aggregations, group policy purchasing and policy review services.

According to Bank Negara’s Financial Stability Report 2016, the average premium per policy has accelerated at an annual rate of 8% in the past five years, compared with an average of 3% over the past 10 years. This is attributed to several factors, including an increase in the complexity of products, which carries higher premiums.

The report adds that the commission-based remuneration structure incentivises the agency channel to focus on products with larger premiums and more affluent consumers. This has lowered the affordability of insurance products.

In Malaysia, direct and online distribution channels, such as Tune Protect and U for Life, only account for 5% of the life insurance and family takaful sales in the country, compared with 25% in the more advanced markets.

 

Partnership and collaboration

Most of the insurtech players in and outside the country have adopted a collaboration model or partnerships with insurance providers. Previously, it was difficult for insurers to operate as they were not very keen on adopting the technology, but this has now changed.

Wilson Beh, co-founder and chief operating officer at PolicyStreet, says insurers are now more open to new ideas and are more interested in engaging with the various insurtech companies. “We want to work with industry partners to increase the insurance penetration in Malaysia by providing ‘starter pack’ insurance. We are in discussions with insurance providers and it is still very early days for us, but it looks promising. Following a good reception in the local industry, we plan to expand to other markets, such as Indonesia, Thailand, Vietnam and the Philippines.”

Allianz’s Wang says there will be more collaboration between insurtech players and insurance providers as this will allow the latter to explore new ways to solve the problems faced by the industry. “With the rapid pace of the change in other technology sectors such as health, mobility and IoT, we expect the adoption of innovation in the insurance industry to accelerate in the coming years. While it is easy for the local market to embrace these disruptive trends, the real challenge is to innovate quickly to keep pace with the rate of change.”

Allianz is also partnering non-insurtech start-ups in its efforts to reach more consumers. It has ventured into small-ticket insurance partnerships that give it access to new markets.

“We started partnerships with ParkEasy (a parking application) and Recommend.my (a service provider) last year as we moved towards service on digital platforms. This year, we established a partnership with Speedrent (an online platform for landlords and prospective tenants). These partnerships not only allow us to diversify our business but also reach out and offer protection at a great value to new and existing customers,” says Wang.

Two months ago, Allianz launched Smart Home Cover — a modular home insurance product — in partnership with ServisHero and

Recommend.my. This product offers policyholders, among others, reimbursement for repairs of burst pipes and repairs or temporary repairs of doors, locks and windows as a result of fire or theft.

Meanwhile, Zurich has held discussions with several insurtech players in the telematics space and is looking to announce partnerships with some players soon. “We are selective when it comes to who we partner with because the idea is not to just jump on the bandwagon. We have to deliver customers the right product. For example, we cannot ask them to pay RM100 for a telematics dongle, but we want to partner those who can offer mobile app-based solutions because they are affordable,” says Cho.

 

The relevance of the agency channel

Despite the entry of insurtech players, the agency channel will not be completely irrelevant, says Cho. While there may be a growing number of consumers who want to bypass the need for insurance agents when purchasing insurance products, there will always be a need for agents, he adds.

“To say that insurtech will replace or significantly reduce the number of agents is an overstatement. From a consumer standpoint, a lot of them do not want to spend a long time online researching the best products for their needs. Some consumers prefer to have a relationship with an agent and do not mind paying a higher premium to be rid of the hassle,” says Cho.

“Insurtech is more suitable for simple micro-

insurance products, such as those that cover snatch theft and travel. But for more complex products, people still need the advice and guidance of agents or financial advisers.”

Iskandar agrees, adding that agents should upskill themselves in terms of giving financial planning advice and prioritising the needs of consumers when offering any kind of insurance products to remain relevant. “The younger segment of the population, for instance, may need simple products such as term life insurance. But people with more financial commitments and conditions will need more complex advice and products. This is where the agents come in,” he says.

“Additionally, I think that the model of just representing one or two insurers is now obsolete. Agents should move towards a fee-based structure, where they represent as many insurers as possible and are paid a flat fee across all the different products. This way, they will not be incentivised to push certain products just because the commissions are better.”

Wang says insurance agents should know how to strike a balance between adapting to the changes brought by the insurtech wave, meeting the needs of consumers and solving the pain points, regardless of the channels the consumers prefer. “Agents need to adopt technology to facilitate seamless, straight-through processing to keep up with customers and meet their requirements. They should make full use of the digital tools available today and be open to technology as this is what customers demand. Digital tools actually complement an agent’s service to provide a more holistic and wholesome experience for the customer.”

One of the insurtech players that has penetrated the Malaysian market to help agents and financial advisers adopt digital technology is Hong Kong-based Covergo. The company provides a digital platform for agents to upload clients’ policies and improve customer engagement and experience. Meanwhile, the Covergo mobile app allows consumers to see all of their insurance policies on one simple interface.

“We aim to automise the manual insurance processes, such as policy management and portfolio reviews. Most of the time, insurance agents store this information on paper or spreadsheets, so consumers end up not knowing what they are covered for. I have personally experienced this. When my father passed away, I had to repay my father’s mortgage because nobody was keeping track of his policies and coverage,” says Covergo founder and CEO Tomas Holub.

He adds that while more insurance companies are setting up their own digital platforms, oftentimes, they are not very reliable and consumers can only access the policies they have with that company. This compares with Covergo’s dashboard, which allows user to view all of their policies regardless of the providers.

The company is planning to introduce features that will allow consumers to get quotes from agents and financial advisers via the app on top of being able to submit claims digitally. “Today, we have more than 100 financial advisers on the app in Hong Kong. In Malaysia, our app is already available, but we are still in the process of getting insurers on board. We aim to get at least one big insurance company on board by next month,” says Holub.

 

First-of-its-kind insurance model in Malaysia

In Malaysia, insurance is usually sold in a one-size-fits-all policy, which can result in customers purchasing products with features they do not need. To address this issue, homegrown insurtech company PolicyStreet was set up early this year to provide customers the option of only purchasing what they need.

“We want to offer simple and affordable insurance policies. These products are chosen to suit consumers’ needs. The products on our platform are also very cheap, to the point that they are not lucrative enough for agents to sell. Thus, we are filling a gap that insurance agents are not able to,” says PolicyStreet co-founder and CEO Lee Yen Ming.

He says the company is focusing on breaking down insurance policies so that consumers only buy products that they need. “For example, some people only want a term life policy to ensure that their family has the resources to cover their funeral expenses. People can go on our platform and buy this product without any other accompanying products. And it is cheap — it is as low as RM9.85 per month.”  

According to PolicyStreet’s website, the platform’s range of insurance products includes medical cards, personal accident, home contents, dental, sports and diabetes care. The products are provided by insurance companies such as Tune Protect, MSIG Insurance (M) Bhd, Archipelago Insurance Ltd and Tokio Marine Life Insurance Malaysia Bhd.

One unique feature of the company’s distribution channel is that it caters for the needs of social groups who are looking for specific features in policies that they may not be able to find elsewhere. PolicyStreet curates products for consumers with like-minded interests and needs, such as cycling or economics groups, and allows them to purchase customised insurance policies in bulk. Part of the profit margin will be given back to the members of the group in the form of rewards.

“Our model is the first of its kind in Malaysia. We have taken the unorthodox approach of not just taking any product in the market, but combing through all of the products in the market to choose a few that we think are relevant to the consumer segments or groups that we have on our platform. We do not work like agencies where we sell readily packaged products and keep the profit margin,” says Lee.

The PolicyStreet team uses an offline-to-online strategy by approaching social groups to get them to purchase the products on its platform. Alternatively, groups can reach out to the company to get their insurance products curated. After the purchase, PolicyStreet will assess the best reward that they can give to members of the group.    

Lee says the company sells policies to groups as it believes that consumers are moving towards a more collective society. While there are many products that caters for individuals, there are not many catering for groups in the country.  

“Consumers nowadays want to have a sense of belonging. We are seeing more active groups that share common lifestyles, interests or needs, yet no one is addressing their collective needs. This is where we come in and provide our assistance,” he says.

PolicyStreet does not limit itself to product distribution. It also helps build new insurance products that can be taken up by the groups on its platform. Group members are allowed to express their interest in certain products, such as insurance coverage for their hair or sunglasses, and how much they are willing to pay. The company will convey this interest to insurance providers in the hope of getting them to design a policy that meets those needs. PolicyStreet is in the midst of collecting data from these groups and plans to approach insurers soon.

According to PolicyStreet co-founder and chief product officer Winnie Chua, with enough demand generated and proper data, insurers will be keener to introduce such policies. “I came from an insurance background and did a bit of pricing in my previous job. What we are trying to do is help facilitate the product development process by giving insurers market insights. When we go to the insurance providers, we already have the volume of people willing to buy the insurance product, so they know that the demand is viable,” she says. Chua was an actuarial and strategy specialist at Allianz Malaysia Bhd.

Prior to founding PolicyStreet, Lee was a director and head of digital marketing at an international bank while chief operating officer Wilson Beh was an investment banker. They are the co-leads of the KL chapter for Next Money, a global network of fintech innovators, conferences, communities, courses and collaboration programmes.

Since the company’s inception, it has managed to underwrite more than RM70 million in sum assured as at July. It recently raised US$500,000 in funding from Singapore-based early-stage venture capital fund KK Fund. “Right now, we are working on a lot of things. One of them is to develop our own reward schemes,” says Lee.

“There are many ways that we can reward groups, based on what matters to them or what they value. For example, we gave Grab drivers who purchase our insurance products a dashboard camera, which is something they really need.”