Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly, on November 28 - December 4, 2016.

 

TUNE Protect Group Bhd, which deals in travel insurance, may face challenging times ahead as travellers are becoming more careful on every ringgit spent.

The bulk of Tune Protect’s earnings is derived from the sale of travel insurance through AirAsia Bhd’s flight booking portal. But at a time of economic uncertainties, the demand for travel insurance comes into question.

“People will be more conscious about spending, so maybe, they will forgo buying insurance. I don’t think we can ignore it. If the economy is facing a downturn, people will start spending less and economise more. The travel insurance segment might be affected,” Tune Protect’s new group CEO Razman Hafidz Abu Zarim tells The Edge in an interview.

For now, demand for travel remains strong despite the economic slowdown and this could be the saving grace for Tune Protect.

“Based on AirAsia statistics, demand for travel is still strong because of the affordability factor. The load factor has increased over the last quarter, reaching between 80% and 90%. This is encouraging, and we hope it will not change significantly. But really, we live from quarter to quarter because of this uncertain environment,” says Razman.

The ratio of travel insurance policies sold to AirAsia passengers has declined to one to five compared with one to four previously. This is partly attributed to the rapid expansion of AirAsia routes, says Razman. The other development that took the insurer by surprise is the increasing sales of offline tickets.

“For example, in the China market, a large number of [AirAsia] tickets were sold to groups, which do not buy insurance via the online portal. Even in the more established markets like Thailand, the percentage of offline ticket sales has increased this year.

“So, there must be more group sales or people are not buying ­(AirAsia tickets) online. Since the second quarter, we have started to pay more attention to offline opportunities,” says Razman, who took up his position at Tune Protect in July.

He adds that the insurer is looking at how it can use offline channels, like travel agents, to sell its travel products to more customers.

The slower take-up of Tune Protect’s travel insurance also coincides with the change in the default option for insurance when booking flights with the no-frills carrier, a fund manager says.

“There has not been much growth [in travel insurance policies] this year. This is different from what I’ve been expecting,” he says.

Tune Protect’s gross written premium for its travel insurance segment in the cumulative six months ended June 30 inched up 5%, a significant slowdown compared with the robust 24% a year ago. The company’s underwriting profit expanded 15%.

The travel insurance segment contributes about 70% to Tune Protect’s profits, while its non-travel general insurance segment accounts for 30%.

While travel insurance is slowing down, Tune Protect’s non-travel general insurance has been seeing growth that is above the industry average of 3%.

It achieved 6.4% year-on-year growth on gross written premium. 

UOB KayHian Research, which initiated coverage on Tune Protect recently, says one catalyst for the insurer could be the stronger-than-expected growth of its non-travel general insurance business.

Year to date, Tune Protect’s share price had increased 26.4% to RM1.63 last Wednesday. The counter ­traded at a price-earnings ratio of 14.26 times. UOB KayHian has pegged its target price at RM2.05, implying  26.5% upside potential to Thursday’s closing of RM1.65.

With the phased liberalisation of motor and fire insurance tariffs in Malaysia, Razman says the company is working hard to ride this trend.

“We are preparing ourselves for de-tariffication. It’s an opportunity for us to be able to offer the right insurance and cover to the right motorist at the right price. So, usage-based insurance is something that we are seriously studying,” says Razman.

In the developed markets, de-tariffication has resulted in cheaper motor insurance for consumers as price competition among insurers intensifies. Tune Protect hopes to grab its market share in this competition, Razman says.

“Those who can offer more than just price differentials will be the winners in the end. On average, margins are quite thin in the motor segment, but there are profitable lines of business,” he adds.

Tune Protect intends to bank on usage-based insurance whereby premium is determined mainly by the amount of time spent or distance travelled on the road. This is an intricate model to implement.

“Usage-based insurance is going to be the area we will be able to win in the long run. The earlier we offer this, the better we will be. It is not easy to implement, but we think we have access to a huge database for us to do it,” Razman says.

Nonetheless, industry players opine this segment requires more capital.

“It would be a new model of growth for the insurance industry in Malaysia — making motor insurance cheaper for those who use their vehicle less and more expensive for those who use it more. But the question is, how will these insurers get consumers to adopt it?”

“It would mean that insurers must measure the distance consumers travel in their vehicles monthly and consumers must be truthful about reporting it. Otherwise, it could be very costly for the insurer if consumers understate the distance,” says an executive familiar with the insurance industry.

He adds that it could be done through mobile applications, but it would require significant upfront cost.

De-tariffication aside, Tune Protect’s foray into Indonesia has not yielded results. Despite two failed attempts to acquire general insurers in Indonesia, it is not giving up.

Razman says that Indonesia remains an important market because of the vast potential there.

“Indonesia has always been our target. I think the potential for the general insurance non-travel segment [there] is attractive, besides the opportunity to be involved in takaful products.

“I’m always optimistic. Under the new government there, the environment for doing business is very attractive,” adds Razman. 

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