KUCHING: Bank Negara Malaysia’s (BNM) recently announced concept paper on life insurance and family takaful (LI and FT) on November 7, may be the insurance sector’s re-rating catalyst.
RHB Research Institute Sdn Bhd (RHB Research) analyst Kong Ho Meng highlighted this in a recent note and explained that the proposals focus on ensuring sustainable operating costs, enhancing disclosure and improving policyholders’ value proposition, which should collectively boost penetration, especially in the mass market.
“We see this as a potential sector catalyst and in line with the government’s efforts to achieve a high national LI and FT penetration rate of 75 per cent by 2020 (from 54 per cent in 2012),” the analyst added.
To note, key measures in the recent proposals include the introduction of the minimum allocation rate (MAR) to replace commission/operating cost limits (OL) on investment-linked (IL) products, partially-liberalising OL for pure protection products, boosting direct channels (walk-ins, online), promoting distribution channels (which are agents, bancassurance and financial advisers), and encouraging greater product transparency with enhanced disclosure requirements and web aggregators.
“Pure protection policies are to have commission-free offerings via direct channels. These are estimated to be 20 to 30 per cent cheaper than similar products sold through intermediaries.
“We see this as a win-win for customers and insurers as it will boost insurance penetration in the mass market, while allowing savvy, educated customers to purchase pure protection products directly or via an intermediary.
The central bank emphasised sustainability of agency cost and agency force (fixed agents to make up 50 per cent of all agents). In the interim, agencies may face adjustments as commissions for initial policy years are expected to decline.
“We expect agencies to retain their role in servicing middle to high-income customers. Meanwhile, the increase in the limit on commissions for savings products in bancassurance may boost its penetration target to 10 per cent of the banking population from five per cent,” the analyst projected.
On the agencies, Kong noted, “While Allianz Malaysia Bhd is a potential beneficiary, we remain neutral on the stock as we are cautious over its 86 per cent LI and FT agency concentration.
“FT players like Syarikat Takaful (one of our top picks), may leverage on opportunities in the mass market and bancatakaful (which forms 53 per cent of the Islamic sector’s distribution channels), although wakalah income may fall with the relaxation on OL.”
Meanwhile, on the non-agents, Kong opined that the market share of regular premiums are expected to increase to 30 per cent from 14 per cent.