Malaysia’s life sector looks set to be transformed as new regulations seek to increase the value proposition for consumers in terms of products and services, while also spurring future innovation to suit diverse needs.
By Ridwan Abbas
There have been plenty of developments in Malaysia’s life market in recent years, chief amongst which has been the flurry of regulatory activities which is reshaping the country’s life market.
With most life companies operating with a multinational mindset, as a result of the influx of foreign players into the market, the technical expertise and professionalism within the sector is increasing further. Coupled with this is the unveiling of the LIFE Framework by Bank Negara (see Box – LIFE Framework explained) which is set to move the industry up to the next level in terms of best practices.
“The framework is expected to spur innovation of a wider range of both products and delivery channels to suit diverse consumer needs based on individual risk appetites, financial goals and levels of financial capability,” said Mr Toi See Jong, President of the Life Insurance Association of Malaysia (LIAM).
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LIFE Framework explained
Three initiatives introduced under the Framework:
1) Gradual removal of limits on operational costs to promote product innovation while preserving policy/certificate value;
2) Diversified distribution channels to widen outreach; and
3) Strengthened market conduct to enhance consumer protection.
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“With the framework, insurers and takaful operators will also have greater flexibility to manage their expenses; this would encourage product innovation and is beneficial to consumers,” he added.
Professionalising agents
One of the first things to be implemented is the balanced scorecard which seeks to direct agents to adopt a needs-based and customer-centric approach. Agents will have an opportunity to earn more than at present should they fulfil the requirements of the balanced scorecard, or have their commissions held back should they not adhere to them.
With the scorecard, remuneration will take into account non-sales factors like suitability of advice, service quality and high ethical and professional conduct.
“Customers will be able to see a more professional and competent agent and I think more people will become confident to be full-time agents too,” said Mr Nicholas Kua, Chief Marketing Officer, Great Eastern Assurance (Malaysia).
Mr Kua added that while the size of agency forces will not increase significantly going forward, there are already signs of increasing productivity.
Ms Anusha Thavarajah, CEO of AIA Berhad echoed the view that quality rather than just quantity will be the focus for her company.
“We want more full-time agents and so we focus on our total number of active agents rather than just recruiting to grow our base. Key to quality full-time agents is also to bring in new blood to join our agency force. We want to bring in young people…you ultimately want people of the same mindset selling back to that segment,” she said.
For several years, insurers were in a race to grow the size of their agency force but now the focus is on boosting the professionalism and productivity of agents – reflecting one of the key aims of the LIFE Framework.
“If there’s no productivity and you pay higher commissions, then the price of products would have to increase and consumers lose out. But Bank Negara intends to see prices come down as people become more professional and productive, coupled with the effects of digitisation where companies become more efficient and cost can be reduced,” said Mr Toi.
Meeting consumer needs
Rather than designing a product and pushing it out, life insurers have increasingly paid more attention to trying to better meet consumer needs.
In the case of AIA, one such example is to offer a standalone cancer product that pays out at Stage 0 of a cancer diagnosis.
To acknowledge the high chance of recovery from early-stage cancer, the plan has a reset feature that restores the customer’s benefits to their original level if the cancer does not advance in the first year of diagnosis.
“One in four Malaysians get diagnosed with cancer so we came up with this product last year. Whereas the focus tended to be on distribution in the past, now there is a keener focus on customers to make sure they are adequately protected,” said Ms Anusha.
“For me, the biggest opportunity is the customers. AIA has 3 million of them so what we do with customers, whether around innovation or big data, is key.”
Widening distribution options
In trying to provide better service to the customers, the LIFE Framework also seeks to widen the accessibility to insurance products to allow more options for customers when purchasing.
For a start, the industry must introduce direct or commission-free pure protection products relating to term, critical illness and medical coverage. The option will lead to lower cost for consumers.
Moving forward, the industry will be introducing more direct channels such as walk-in branch services, direct marketing or through websites.
“For those consumers who are savvy and prefer to do things on their own, these will provide additional channels for them to seek solutions. When you talk about commodity-like products such as travel insurance, transacting online is already a norm,” said Mr Kua.
On a whole, the LIFE Framework seeks to make it easier for anyone to purchase life products whatever the needs and preferences are.
Traditional channels remain integral
While more channels sprout, agents remain the main distribution point for life players in Malaysia.
“We have a bancassurance channel and also a big telemarketing team that sells to bank customers. While we intend to go online as part of the Life Framework, our agents are still the cornerstone of our distribution strategy and their role will remain prominent, said Ms Anusha.
She added the company will seek to have an integration of both online and offline experiences, thereby directing some of the online traffic to agents offline – in order to advise on more complicated products.
Nonetheless, an evolution has taken place as more people are active online – which has also prompted a change in the look and feel of an AIA service branch, said Ms Anusha.
“In the southern part of Malaysia, we’ve closed all our old branches and opened up new ones – we now have the more ‘techie’ areas but also service counters for people who still prefer to talk to someone.
“I foresee that our branches will play a different role over the next five to 10 years. We might potentially look at branches as places where people come to for awareness on insurance rather than servicing…we’re already shifting a lot of our servicing work online,” she said.
Opportunities
The economic headwinds in Malaysia has certainly had an effect on consumer sentiment. In a bid to provide for additional disposable income, the government recently announced a temporary reduction in employees’ contribution to the Employee Provident Fund (EPF) from 11% to 8% till end-2017.
“This temporary relief will provide workers with additional disposable income to help them to manage their resources during these challenging times,” said Mr Toi.
But while there is a higher inclination to conserve cash, the uncertain environment perfectly illustrates the importance of protection in order to tide through life’s uncertainties.
“All the more in these uncertain times, financial protection is critical. If something unexpected happens, you don’t want to be diving into your savings,” said Mr Kua.
With employment prospects in certain sectors not looking too bright, it also presents a good opportunity for insurers to attract new talent, said Ms Anusha.
Mr Kua echoed that sentiment and said the life industry is able to provide a viable career option, especially for those whose companies have had to down-size in these tough times.
Looking at the prospects ahead, Ms Anusha said: “I’m reasonably optimistic and I foresee a single-digit growth for the industry this year. My sense is the big companies will outperform the market though.
“The growth drivers are the protection gap and low penetration, we need to attract more full-time agents and increase their productivity, professionalise the whole advisory process and make sure that consumers are sold the right product at the right level of protection.”