Insurance: Simplicity — key to addressing low penetration rate

This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on August 13, 2018 - August 19, 2018.
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The complexity of insurance products and the lengthy application process are putting off many prospective customers. Hence, there is a need for simple, fuss-free products that not only address the low insurance and takaful penetration rate in Malaysia but also serve as an introductory step in encouraging the public to be sufficiently insured.

According to Mukesh Dhawan, general manager of life insurance and family takaful at Zurich Malaysia (Zurich Life Insurance Malaysia Bhd and Zurich Takaful Malaysia Bhd), prospective customers in emerging markets often cite the complexity of insurance products and the tedious application process as reasons for being inadequately covered. He says similar findings were published in a 2016 study on income protection gaps by Zurich Insurance Group and University of Oxford’s Smith School of Enterprise and the Environment, in which 11,000 respondents from 11 countries — including Malaysia — participated.

The study found that 52% of the respondents did not have insurance plans but were willing to consider buying one. According to the report on the study, the two biggest barriers preventing them from doing so were their limited understanding of the products and the perceived high prices.

“So, a logical step to grow the market would be to make [insurance] easy to buy, and sell as well, because if I address only one part of the issue, then I may not achieve the goal,” says Mukesh.

“Suppose I make it easy for customers to buy our policies, but the salespeople require extensive training and a lot of rigour in making a simple product understandable. Then I have lost the purpose because the product becomes difficult to sell.”

In addition, the insurance and takaful penetration rate in the country has been between 54% and 56% over the last five years. But after eliminating double-counting (policyholders sometimes have more than one policy), only 35% of Malaysians are insured, according to industry statistics.

Mukesh says insurers in the country are well aware that Bank Negara Malaysia would like to see more done to increase the penetration rate to 75% by 2020. To tap local demand and help grow the penetration rate, Zurich Malaysia recently launched a whole life insurance plan — Zurich SureCover — which offers policyholders protection until the age of 100, and a takaful version called Takaful SureCover, which covers policyholders until the age of 90. With guaranteed acceptance for those aged 35 to 80, the premiums, which will not increase with age, start from RM75 a month.

While the insurer allows customers to secure these plans regardless of their health condition or occupation, they only provide coverage against accidental and non-accidental deaths up to 500% of the basic sum assured. The products offer a different guaranteed maturity benefit.

Mukesh says the policies do not protect against total and permanent disability, nor are there any healthcare elements. “It is based on a basic need, which is the death benefit. Simplicity is the highlight of this product. That is why we call it SureCover — because we will surely cover you. No fine print and no catch phrases. It is a hassle-free solution that requires no medical underwriting or lengthy questionnaires,” he tells Personal Wealth.

Mukesh says the products, which were launched in the second quarter of the year, are currently available via Zurich Malaysia’s 10,000-strong agency force in 27 locations across the country. The primary targets are first-time buyers from the middle-income segment of the population.

“Research has shown that over the years, the overall insurance penetration rate has slowed because it is too cumbersome to buy insurance products. Unfortunately, it is far easier to take out a home or car loan than to buy insurance,” says Mukesh.

“Insurance needs to be broken down into simple protection, sophisticated protection, health and so on. So, we have done just that by providing ‘baby steps’ for first-time buyers.”

Although the products target first-time buyers, the entry age starts from 35 because research has shown that the need for protection becomes more important for that age group as they are possibly married with children, says Mukesh. “It is difficult for a 25-year-old to think about protection beyond getting a health card. They prefer to buy clothes and gadgets or go on holidays.

“That is what our mindset is when we are 25 to 30 years old. In the insurance and takaful industry, we term this a ‘stage of life’. Once you get married and have children, however, you start thinking in a different way and most people who reach 35 are in that zone.”

According to Mukesh, SureCover is an improved version of an earlier product called SeniorGold, which is only available to those 50 and above. He says these products are not dramatically different from each other as only certain features have been refreshed and the age of entry has been lowered.

“Based on our SeniorGold customers’ feedback, there was a demand for another simple product. There were two types of SeniorGold buyers — those 50 and above and younger ones, who bought the product to protect their parents. We thought the younger segment would prefer to buy more sophisticated products, but they asked us to come up with simpler ones,” says Mukesh.

Due to the simplicity of the products’ structure, they are not for those looking for comprehensive coverage or high death benefits (for example, RM500,000 or RM1 million), he adds. These products would be more suitable as add-ons to existing protection plans.


Supplementary protection

Mukesh says the death benefit should be at least RM200,000 for the average Malaysian, taking into account the current standard of living. “For a family of five — husband, wife, child and grandparents — the husband would need to ensure that there is at least RM200,000 to cover the family’s needs for a reasonable period of time. This amount would cover things like rent, school fees and medicine. However, industry data shows the average sum assured per capita in the country is less than RM50,000.”

The two products are aimed at those looking to supplement their existing protection plans, but have trouble securing an additional policy. The older one gets, the more expensive insurance becomes, Mukesh points out.

“Many of those in the 50-to-55 age bracket would say they wished that they had bought more insurance when they were younger. We have a value-for-money proposition for them because there are no questions asked and the products are affordable,” he says.

“Since we launched the products, the initial response from our customers has supported our hypothesis [that the take-up rate would be encouraging]. It has been a couple of months since we launched them and Zurich SureCover already constitutes 10% to 15% of our new sales while the Takaful SureCover makes up about 18% to 20% of new sales.”

In the event of death, the products offer a repatriation benefit of up to RM3,000 to send the mortal remains of the life assured back to his home country. Mukesh says there is a growing need for this benefit as more people travel and work abroad. “I myself have lived in six countries, in cities I can’t even count, and so do many people. That is what created the demand and the need.

“Even the elderly are travelling for various reasons. In Malaysia, especially in the takaful segment, consumers are travelling for pilgrimage, which makes the need for the repatriation benefit very legitimate.”

Zurich Malaysia plans to make these products available via other distribution channels, possibly in the next 12 months. “We launched these products a few months ago, so we want to see the feedback first. If all goes well, perhaps a year later, these products will be made available through other channels.”