This article first appeared in Corporate, The Edge Malaysia Weekly, on May 16 - 22, 2016.
FIRST, it was music. Next, it was airline tickets. It was not long before other sectors were hit — fashion, retail, hotel rooms and taxis. Technology and the internet have changed every business sector they touch. Now, disruption has come to the financial services industry in a big way, particularly in the areas of payment and consumer banking.
Funding for financial technology (fintech) globally has increased sevenfold in three years to about US$20 billion in 2015, some 66% higher than in 2014, according to KPMG International’s FinTech 100 report.
In Malaysia, slowly but surely, consumers are beginning to do more banking online as well as research and purchase financial products like credit cards and personal loans. In recent months, more insurance products have been placed online on aggregators and price comparison websites as well as directly by insurers.
For decades, insurance agents and agencies have long dominated the game, particularly in the areas of life and health-related products.
Sure, simpler products like travel and motor insurance have for many years been sold online in Malaysia. But now, the big-money medical and life products are following suit.
Malaysia’s insurance industry is on the cusp of a landscape shift, thanks to a convergence of technology, consumer behaviour and liberalisation by industry regulator Bank Negara Malaysia.
What is happening online
KPMG’s Transforming Insurance report notes the different stages of the tech disruption that will happen in the insurance sector. While a web presence is sufficient initially, the ability to transact over the Internet will come next.
“The next phase brings process and productivity gains, largely to win cost efficiencies. The most sophisticated are building an ecosystem where they look to interact with their customers in multiple contexts and recognise that customers are complex and multifaceted.”
On a broader scale, there is a lot of investment in InsurTech, a branch of fintech that is looking at how the latest technological innovations can enable or disrupt how the insurance industry works.
This includes peer-to-peer insurance platforms, artificial intelligence to improve risk assessment and underwriting, and data analytics to enhance decision-making and product design. Malaysia is currently on the first rung of the ladder.
In the last four to five years, several online price comparison websites have emerged in the Malaysian market, offering information and online application of simpler products, namely personal loans, savings accounts and credit cards before moving into home loans and investment products.
In the last year, two large local comparison sites — iMoney and RinggitPlus — have added insurance products. Last year also saw the launch of UforLife, the industry’s first online insurance platform which is underwritten by TokioMarine.
Just last week, Singapore-based fintech startup GoBear, a meta search engine for insurance and credit products, launched in Malaysia. These are signals that the tech start-ups and some insurers are looking very seriously at the online insurance vertical in Malaysia.
iMoney started listing medical insurance plans last year to test traction. It eventually added travel, motor and personal accident insurance.
“Four years ago, we did not see demand for insurance products. The tipping point was last year and we believe consumer demand will continue to increase,” says iMoney Group CEO and co-founder Lee Ching Wei.
“Partly, this is being driven by insurers themselves. They now see digital as a viable customer acquisition channel.”
iMoney Group plans to add more products to this insurance vertical, Lee says. He notes that insurance products generally drive a big part of revenue for price comparison websites, judging by similar models overseas.
“But it’s hard to say how quickly we can get there. We are quite bullish but it will take time to get consumers used to buying insurance products online. Having said that, [getting consumers used to taking out] credit products online did not take a long time,” he adds.
In Malaysia, GoBear intends to add more insurance products to its site this year, including motor and term life. GoBear Malaysia’s country director Iskandar Ezzahuddin is upbeat but concedes that there are still challenges in making putting insurance products online.
“The challenge is in getting banks and insurers to come on board. We have started talking to them. But for term life, the process isn’t so quick because it has been an agent-dominated industry,” he says.
iMoney’s Lee does not believe there will be significant disruption in the next year or so, in terms of how insurance is bought and sold. “Agents will still play a big role. But it will come,” he says.
What regulators want
In Malaysia, the move towards growing the online channel to sell insurance products was given a boost by Bank Negara’s recent policy moves in the insurance and takaful space.
For several years now, the central bank has been urging the financial services industry to leverage more on technology.
The most specific and relevant policy change can be found in the new LIFE (life insurance and family takaful) framework released last November by Bank Negara, which makes it mandatory for insurers to offer commission-free products through at least one direct channel.
“These non-intermediated channels include the insurer’s branch or office premises or online,” reads the framework.
It is the framework’s second reform imperative that has given rise to the internet as a real alternative distribution channel for insurance products.
Term products must be available through direct channels with effect from Jan 1, 2017, while other products like critical illness, medical and health insurance/takaful products must be available directly by Jan 1, 2018. In addition, Bank Negara recently announced phased detariffication of fire and motor insurance from mid-2016 onwards, which should lead to a wider range of products.
Ahead of the deadline, almost all the insurers have started to place products online to comply with Bank Negara’s new requirements but this does not mean that all insurance providers are suddenly big believers in technology.
“Some are just doing it for compliance’s sake, having some products online where people can click and buy, but they are still sticking with the usual way of doing business,” says an insurance industry insider who has been observing the changing trends.
However, he adds, “The more proactive insurers actually do have a proper digital strategy in place and see digital as another way of reaching out to new clients.”
According to the framework, Bank Negara envisions that regular premium products sold or marketed via non-agency channels should exceed 30% of the market share by 2020. It is uncertain what percentage of insurance products is being sold outside of the agency channels currently, but the proportion is believed to be relatively low.
What about the agents?
Fintech evangelists warn that those clinging to the status quo in the insurance sector need only look at what happened to travel agents over two decades ago.
In the old days, the lion’s share of airline tickets were sold through travel agents and agencies. But when airlines, especially the budget operators, realised that they could be more cost-effective and efficient by selling tickets online, it shifted the way consumers booked flights. Today, most airline tickets are bought direct from airlines or online. Travel agents still exist but handle more complex transactions and offer value-added service.
AIA Bhd CEO Anusha Thavarajah notes that while the insurer intends to go online as part of the LIFE framework, its 14,000-strong Life Planner force will remain the cornerstone of AIA’s multi-channel distribution strategy.
“We will seek to have an integration of both online and offline experiences, thereby directing some of the online traffic to our agents offline. This is especially so they can advise customers on the purchase of more sophisticated products,” Anusha says.
Insurance agents polled by The Edge stress that selling insurance online — especially life and health — is not as simple as selling clothes or air tickets over the internet.
Some insurance agents and financial planners say it is still too early to gauge the impact of online disruption on their livelihoods. “They used to say that there will be no more travel agents in the future, but that has not happened. I don’t think the internet will wipe out insurance agents or financial advisers,” one financial planner points out.
“What’ll probably happen is that consumers will be more informed about products and research things on the internet but still want to speak to a human being to buy insurance,” says one insurance agent, who has been in the business for two decades.
This view was put forth in earlier research carried out by the Swiss Reinsurance Company Ltd (Swiss Re). The 2014 report points out that consumers in emerging Asia, where e-commerce is enjoying rapid growth, remain reluctant to buy insurance online.
“According to Swiss Re’s 2011 survey, less than 40% of consumers in developed Asia Pacific would purchase life insurance online although more than 50% would be comfortable buying non-life insurance online,” the report says.
Nevertheless, some insurers are cognisant of the fact that online channels may be more suited for markets with a large-enough younger, tech-savvy middle class that is comfortable with buying non-tangible products on the internet.
A Kuala Lumpur-based insurance agent points out that life and health insurance planning is a long-term matter, a fact that the online space currently cannot cater for.
“As your needs and life situation changes, you will need to revise your plan. Are the online sites going to be there to explain things to you when your situation changes? What about claims?”
She says websites that promote the idea of “comparing the cheapest premiums” are somewhat misleading as it draws attention away from the details, restrictions and limitations of each product.
“Buying health/life insurance by comparing the cheapest premiums is the worst way to buy insurance. Sure, any coverage is better than no coverage, but in the long run, what are you paying for?
“Say, someone buys a cheap life insurance plan, not knowing or concerned that it terminates at age 70. And at 71, he is uninsured and uninsurable. Then what? Then, it will be too late for anything.”
This is a view that iMoney’s Lee agrees with. “You cannot compare insurance just on pricing, there are lots [of things] to consider.”
“But I don’t think agents are viewing online [channels] accurately. We do not intend to replace them; we are supplementing them. We fulfil the role of generating interest in insurance products and passing them on.” iMoney is currently in beta testing with some insurance agencies on potential collaborations, he reveals.
Certainly, technology can be both a disruptor of old models or an enabler of new ways.
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