This article first appeared in The Edge Malaysia Weekly on November 11, 2019 - November 17, 2019

THE distrust that plagued the insurance industry 30 years ago continues to haunt it today, says Allianz Malaysia Bhd CEO Zakri Khir.

“A merchant once wrote to his wife, who had moved because of an illness, saying, ‘These insurance people, quick to take my money but very slow to pay me’. This happened in the 11th century but it still resonates today,” he says, laughing.

“We have not evolved as an industry and we need to reinvent ourselves to stay relevant. We are still not definitive and this is the reason why the industry is plagued by distrust. Insurance companies have a social responsibility and a duty to explain to the people as most of them don’t have a full understanding of the policies they buy, what their rights are and whether they are going to get paid adequately if they make a claim.”

“While we (Allianz) have made strides in the last few years, we are still not there yet. More needs to be done … the transformation for both our companies — general and life insurance — is to be very definitive and predictable.

“We are this giant traditional insurer in a very competitive market where everyone wants a bigger slice of the pie. We need to preserve our competitiveness, we need to be relevant to people, we need to be a commercially viable entity. It’s the only way to stay ahead of the game,” says Zakri, who has been in the industry for more than three decades.

“One part of Allianz’s ongoing evolution is making its products and processes more definitive, simpler and easier to understand,” he says.  This includes offering single-illness products, such as Allianz Diabetes Essential, which caters for those with Type 2 diabetes, rather than a complex package covering several illnesses.

“Allianz is also diversifying its general insurance portfolio to de-risk its exposure in the motor segment and look for those that can give us better margins and sell more non-motor (insurance),” he says.

Is the evolution starting to bear fruit? Zakri believes so.

“This year, we want to be at least as good as last year, financially. We are not being modest. The environment isn’t great. If we can get away with delivering as per last year, we will be very happy. We are in the process of evolving, there will be a lot more intense activities — such as evolution and simplifying processes — for the next one to two years. If things work out as planned, I hope to see better revenue and profit,” he says.

Allianz’s earnings have been on an upward trend. Operating revenue increased from RM4.68 billion in FY2016 to RM4.8 billion in FY2017 and RM5.18 billion in FY2018. Gross written premiums grew from RM4.18 billion in FY2016 to RM4.29 billion in FY2017 and RM4.5 billion in FY2018.

Dividend per share rose in tandem from nine sen per ordinary share in FY2016 to 12 sen in FY2017 and 40 sen in FY2018. Return on equity ranged between 9.6% and 11.6% during the period.

Although Allianz’s transformation — which began three years ago — seems to be making a positive impact on its numbers, Zakri says the impact is lower in the general insurance business. “The general insurance industry needs to be completely liberalised. After all, the financial regulation is already based on risk-based capital (RBC). I believe this will make the general insurance market more efficient, which will ultimately benefit the Malaysian insuring public. The regulators completely understand this but I suppose they need to convince the government that a fully liberalised insurance market is an important component of a free market economy. The market is ready, we are in a RBC environment and our regulation should be RBC, but it is still prescriptive. And this can sometimes be at the expense of the development of the industry. Regulators in most RBC markets regulate on capital rather than prescriptive processes,” he observes.

Zakri does not foresee technology taking over traditional channels any time soon. “Tech will not take over as, again, it all boils down to trust. The consuming public will have to change first but I don’t see evidence of that. People completely underestimated the ‘trust’ factor in insurance. They will have to trust the institution before they buy directly.

“When you have distrust, [buying] online directly will not take off. And we are working very hard to demystify this perception. I don’t know when human behaviours will change … when people will be confident enough to buy all insurance plans directly online. In many markets in the world, people only buy motor and travel insurance directly. But there are far fewer people who buy directly when it comes to health and life. The policies are too complex and need to be explained.”

Allianz is not standing still. “We are digitalising our distribution and we are moving towards intermediary channels. We are working with partners who, for all intents and purposes, are agents because they are intermediaries, although they are not classical agents. We feel that the intermediary approach in Malaysia remains very relevant,” he says, adding that Allianz’s agency force remains at around 12,000.

While Zakri does not see technology displacing the insurance agency model any time soon, he expects further consolidation in the industry but says Allianz is currently not in talks to consolidate. “We have too many players, especially in the general insurance sector. There are still stumbling blocks to a consolidation. When an acquirer wants to buy smaller insurance companies, the question of national interest comes in. But the insurance industry is not like the banks. I can understand that local banks have a national interest because of interest rates and credit … The national interest aspect of local insurance companies is not as great as that of banks. If insurers want to price ourselves up, people won’t buy — they are not desperate to buy insurance.”

“If there is an opportunity (for M&A) and we see a good fit, we will hold discussions but we won’t hire somebody to look around. If it comes, it comes. We should be allowed to buy but we will, of course, comply with the necessary regulatory requirements. The industry is already closely regulated to protect customers, so the issue of national interest is being addressed already.”

In September, The Edge reported that merger talks have ended between Allianz and AmGeneral Insurance Bhd, a 51%-owned subsidiary of AMMB Holdings Bhd.

“Although we lost the bancassurance deal with CIMB and we are now in a de-tariff environment, Allianz is still No 1 in general insurance. I’m not saying this in arrogance but the fact is that we are prepared to evolve and that gives us the strength to continue to be at the No 1 spot.”

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