This article first appeared in Corporate, The Edge Malaysia Weekly, on May 16 - 22, 2016.

THE idea of selling insurance online has only recently gained more traction among local insurance players. An increasing number of insurers’ websites are offering consumers the option to purchase policies online, while aggregators are stepping up efforts to market insurance products on their sites. However, it looks like the selling of insurance online in Malaysia is still in its infancy.

A push factor is Bank Negara Malaysia’s LIFE (life insurance and family takaful) framework, which requires insurers to offer commission-free, stand-alone pure protection products through at least one direct channel from next year. One option for a direct channel is online.

Another push factor is changing consumer demand. Insurers find themselves having to deal with a growing group of tech-savvy, price-conscious consumers who have grown accustomed to search engines and the internet.

Tune Protect Group Bhd CEO Junior Cho says the company, which is known for offering travel insurance online, has seen over the last year greater traction in its non-life product offerings among consumers who purchase such policies online.

“Comparing 2014 and 2015, in terms of policy growth for insurance purchased online, we have seen our policy sales grow two- to threefold. We have worked on driving digital marketing to increase awareness of insurance, but also simplified our process to buy and claim online. Our growth has been remarkable, but there is still a long way to go as it is a small percentage of our total portfolio. We are encouraged by the results and performance,” he says.

Detariffication of motor and fire insurance will be done in stages over the next few years under a plan to liberalise the sector.

While insurers acknowledge the potential of the online medium, many hold the view that the online distribution channel for insurance would work better for less-complex products, while more complex products would still require face-to-face interaction. Hence, they expect the online medium to take off gradually rather than experience a sudden surge post-liberalisation.

“It will probably be a slow, gradual development. Simpler and cheaper products can be sold online. I believe it can take off for general insurance like motor, travel and personal accident, but it may be a little more difficult for life insurance, although not impossible,” says an executive involved with the insurance industry.

Interestingly, CIMB Investment Bank Research analyst Winson Ng opines that a direct channel, like a website, for insurance purchase will likely benefit the smaller players rather than the bigger insurers.

“Smaller players don’t have access to a big agency force, unlike the bigger boys. An agency force can be quite costly.”

According to Bank Negara’s Financial Stability and Payment System Report 2015, the preliminary numbers show that total agent remuneration under life insurance for 2015 amounted to RM3.9 billion, equivalent to 13% of the net premiums for that year. Total net commissions for family takaful in 2015 amounted to RM846.6 million, some 16% of the net contributions for the same year.

Cho says online platforms will definitely improve the bottom line and efficiency of insurance companies as they help drive greater operational efficiency through scale and automation.

“This model enables direct access between the customer and insurer, driving savings from not having to have an intermediary,” he adds.

Will greater efficiency mean that there will be cheaper insurance products?

“The common perception is that digitisation lowers operational cost and the price of insurance products. While this view is generally true, digitisation needs to be matched with customers’ needs and business scale. Over-investing in digital assets or capabilities that do not provide customers with better value may result in costlier products,” cautions Allianz Malaysia Bhd chief operating officer Sean Wang.

One thing that seems certain is that as liberalisation takes place and the online medium gains more traction, insurers stand to gain. “The determining factor will be how well the companies’ digital platforms, processes and procedures are put in place to handle the whole liberalisation exercise and best serve customers. Companies that have better processes in place will clearly do better than the rest,” says Wang. 

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