Insurance: Not all insurance products are cheaper online, says Neoh

This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on October 2, 2017 - October 08, 2017.
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Consumers should be careful when purchasing insurance products online as not all of them are cheaper or have better benefits despite the initial impression given, says Kevin Neoh, a financial planner with VKA Wealth Planners Sdn Bhd.

There is a lot of hype around fintech (financial technology) and insurtech (insurance technology) that makes people think buying insurance online is cheaper, he says. “But this may not be the case,” he tells Personal Wealth.

To make his point, he compares two 20-year term life insurance products — one offered online and the other by an insurance agent.

The online product could carry varying premiums throughout the policy tenure. This may not be clearly displayed on the website, which could lead users who don’t do the calculations to think it is cheaper, he says.

The 20-year term life product provided by the website has a yearly renewable term, which means the premium could be higher each subsequent year, depending on the insurer and the policyholder’s health condition, he says. Meanwhile, a level premium is charged for the product offered by agents.

 “This means the premium is fixed throughout the 20 years. At the end of the day, if you do your calculations, you will find that you have to pay more for the same product than if you were to purchase it online,” says Neoh.

This case is not limited to just one online insurance portal. He has done the maths, and says if an individual above 25 wants to buy a term life insurance product online, with a sum assured of RM200,000,  he would probably pay a higher price than if he were to buy it via traditional channels such as agents.

“For those 25-years-old and younger, the same products offered by traditional channels are slightly more expensive than those offered online. However, if you take into account the potentially higher premium you would have to pay when premiums are revised by insurers a few years down the road, buying online still does not guarantee a lower price,” Neoh says.

Many insurance portals today offer term life insurance, as well as hospital income and personal accident policies. Personal accident insurance covers accidental death or disability while hospital income coverage typically provides policy holders a daily income in the event of hospitalisation.

Neoh says while most hospital income plans offered online may be cheap, they may not necessarily benefit the policyholders.

“In certain cases, you pay RM400 per year for such a plan so that you will get, let’s say, RM70 per day when you’re hospitalised. This means you would have to stay in hospital for six days to recoup your cost, which is quite unlikely unless you need a major operation,” he explains.

He says insurance portals, especially those operated by insurance companies, should be more transparent to ensure their users get accurate information about the products they are buying.

“Some of these websites do not paint a clear picture to users. In some cases, the information can be a bit misleading,” he says, citing the same 20-year term life insurance products as an example.

Also, some do not clearly explain that the policies are “renewable annually”, which means the premium is renewed each year and may be raised.

In another case,  one such portal offered a “30% commission rebate”, which he finds a bit misleading and requires further clarification.

“It is actually a 30% rebate based on the commission the platform will receive.  On the surface, it may seem as though the discount is based on the premium paid, which is not the case. The platform still takes a commission, but gives a 30% rebate to its customers,” he says.

 

Positive on technology

Despite these issues, Neoh welcomes the changes that technology can bring to the insurance industry.

He notes that insurance products are generally still costly for the ordinary person. One reason is the commission paid to agents and related parties.

For example, if a person were to buy an investment-linked insurance policy, the total commission paid to the agents and related parties could be as high as 160% over the period of six years. This means that if a policyholder pays a premium of RM2,000 in his first year, the commission is around RM3,600.

“The commission does not only go to the agent, but the leader of the agency team also takes a cut. The insurers retain some portion of the commission too for their marketing and sales expenses,” Neoh explans. “So,  if online platforms and insurtech start-ups can sell products directly to consumers, it will make them more affordable to us, which is good.”

He hopes insurance portals will lend a helping hand to customers in comparing the prices and benefits of different insurance products. This is easily implemented when it comes to motor insurance as athe products are standardised and less complicated, making it easier for insurers and independent financial comparison websites to list them online and sell directly to consumers, he says.

But it is a different case for life insurance products as they are more complicated.

“Let’s say a term life insurance product insures you for 10 years with a yearly premium of RM1,000 and another product insures you for eight years with a yearly premium of RM850 but with some other benefits. How are you going to compare them?” he asks.

The Singapore government has created a website called Compare First to facilitate comparison of the costs and benefits of different insurance products, but traffic to the website is said to be low “as it is very hard to compare life insurance products”.

However, assuming that life insurance products could be standardised or compared in certain ways, insurance companies must be transparent with their information and be willing to post it online for public scrutiny.

Another issue that is slowing the adoption of technology in the insurance industry are the agents who are the dominant channel for the distribution of most insurance products.

Even if insurers are interested to sell their product directly using online platforms, they have to take into account the interest of these agents and do it gradually, says Neoh.