Chew says the insurance industry has just entered the first phase in the progressive liberalisation of the motor and fire insurance tariffs which began on July 1 this year. BNM says over the the next five to 10 years, the insurance industry will undergo its most significant transformation, possibly since the early 1990s when the insurance regulatory system in Malaysia was overhauled. — Reuters photo
KUCHING: The landscape for the insurance industry is poised to change over the next decade.
Bank Negara Malaysia (BNM) said over the the next five to 10 years, the insurance industry will undergo its most significant transformation, possibly since the early 1990s when the insurance regulatory system in Malaysia was overhauled.
During that period, the insurance landscape is expected to change in ways that will have a direct and profound impact on the experience that consumers and businesses have with insurance.
BNM’s assistant governor Jessica Chew said,”The insurance industry itself has just entered the first phase in the progressive liberalisation of the motor and fire insurance tariffs which began on July 1 this year.
“After over 30 years during which more than 60 per cent of the general insurance market has been regulated under tariffs, this is arguably the most significant reform of the general insurance market in decades.
“The implications of the reform are much wider than just an adjustment to premium levels.
“It will pave the way for a new wave of product innovation, significantly expanding choices for consumers.
“It will improve incentives for safe driving behaviours and better risk management practices by both risk owners and insurers.
“And it will address market distortions which have threatened access to motor insurance, particularly for higher risks,” she said in her keynote address at the General Insurance Agents Convention in Kuala Lumpur recently.
She noted the profound impact of financial technology (fintech) on the provision of financial services – including insurance – is set to gain more traction in Malaysia.
She believed the changes will be implemented at a time when businesses and households are facing rising costs and more uncertain conditions which can adversely affect discretionary spending on insurance.
At the same time, she pointed out that the exposures of households and businesses, which insurance is designed to protect, have actually increased as evidenced by more frequent and severe incidents of natural and man-made disasters.
She revealed that in Malaysia, the general insurance penetration level measured in terms of premiums as a share of gross domestic product (GDP) stood at less than two per cent currently as compared with 1.68 per cent as at end of 2015.
In comparison, Chew highlighted the premiums as a share of GDP were about three to four per cent in more developed markets.
She believed there was reason to believe that the extent of underinsurance is widening given the growth in economic activity and higher risk exposures.
Citing an example, she observed that during the December 2014 flooding in the east coast of Malaysia, total economic losses were RM2.6 billion while insured losses paid nationwide as at end of 2015 was close to RM100 million, which was only a fraction of total economic losses.
Chew pointed out some of the more important reasons for underinsurance include a lack of risk awareness and the lack of affordable products particularly for low income groups.
Another important reason, she said the central bank has also observed was a lack of trust in insurance providers and intermediaries.
Hence, she opined that insurance agents will need to improve their services in order to achieve higher insurance penetration rate.
“First, agents will need to build their capacity to analyse consumer needs and risk profiles, and be able to match them efficiently to suitable products or combinations of products that are appropriate to the consumer.
“Second, agents need to be able to provide higher and more unique value in their services, and they need to be able to do this in a highly flexible way.
“Going forward, insurers are expected to leverage more extensively on direct channels to distribute their products and communicate with customers.
“With digitisation and other new technologies, not just in insurance but across all other financial and non-financial services, the costs of distribution and managing customer relationships can be greatly reduced with expanded reach.
“Digitisation is also expected to give rise to new entrants into the insurance value-chain such as product aggregators, which will allow consumers to easily compare product features, providers, coverage and price.
“These developments will drive the increasing adoption of multi-channel distribution strategies.
“Third, insurance agents will need to embrace a broader role in the education of consumers,” she believed.