Appreciating the Past Four Decades
LIAM’s Vincent Kwo
QHow do you see the development of the life insurance industry in the next 10 years? One of the objectives set by the Malaysian Government is to achieve an insured population of 75% by year 2020. In Malaysia, we have a dual protection systems which complement each other, namely conventional insurance and takaful (based on syariah principles). Currently the penetration rate of conventional insurance and takaful is at 54%. The Government has recently released a concept paper on Life Insurance and Family Takaful Framework (LIFE framework) which will serve as a blueprint for the development of the life insurance and takaful industry It contains several proposals to reform the life and takaful industry, aimed at increasing the penetration rate and raising the level of operational efficiency of the industry. It is also intended to enhance the level of consumer protection as well as drive greater productivity in this sector. A quick glance of the proposals and key performance indicators of the LIFE concept paper is indicated below:
Increase Penetration Rate from 54% to 75% by 2020, while protecting consumer interest
Widen outreach and diversification of products and distribution channels
Liberalize industry to promote healthy competition and innovation of products for the benefit of consumers
Strengthening market conduct and instilling greater professionalism among intermediaries to enhance consumer protection
More professional services to ensure quality service to consumers
Continuous education and consumer awareness towards empowering consumers
Preservation of policy value to ensure consumers obtain value from their policies
“One area that insurers should look at is the financial inclusion for the population. This is particularly important in the case of Malaysia whereby we have an urban, sub-urban and rural population.
Clear and transparent product disclosure to ensure consumers understand the products and services purchased with no hidden costs
Availability of pure protection products via direct channels
QHow can the industry contribute to fulfil the Government’s aspiration in insuring 75% of Malaysians by 2020? One area that insurers should look at is the financial inclusion for the population. This is particularly important in the case of Malaysia whereby we have an urban, sub-urban and rural population. There is a need to develop suitable insurance products and introduce new delivery channels to reach out to the remainder 50%, of which a high percentage of the population could be concentrated in rural areas. In 2013, LIAM undertook the first protection gap study together with the Universiti Kebangsaan Malaysia. There is a huge protection gap even for families with insurance protection. This is because the level of insurance coverage is still inadequate. The key findings of the survey include: (a) Many Malaysian households are substantially underinsured. The average protection gap for families (2 adults and 3 children) whose primary wage earner has both life and medical insurance was RM553,000 per family. What it means is that, when there is a death to the wage earner of the family, in order for the family to sustain its current lifestyle and continue with their daily consumption, they would need a sum of around RM553,000 to last them for at least 5 years. (b) Families whose primary wage earner was covered by a life policy only and not a medical policy had a slightly higher gap, at RM642,000 per family. (c) The average protection gap for the group headed by a breadwinner who was not covered by either life or medical insurance was largest, at about RM723,000 per family. (d) The average mortality gap for each member of a family was between RM100,000 to RM150,000. The results of this study also indicate the need for insurers to develop low premium products that have a wide reach to consumers at large. There is also an urgent need to look into suitable retirement planning products for Malaysians. Although the government has granted the insurance industry a similar tax relief as the Private Retirement Scheme, the take up rate of deferred annuity is still low. There is a need to look into more cost effective distribution systems to promote retirement planning, other than relying on the agency channel. In addition to the above, LIAM and the industry need to continue its efforts to raise the financial literacy of Malaysians. Initiatives such as educational programmes, advertorials or advertisements, radio and TV interviews are carried out by LIAM on an ongoing basis. In this regard, LIAM has worked with a few newspapers and a magazine to publish various educational articles on life insurance. The topics of these articles ranged from general introduction to life insurance, determination of proper sum assured, types of policies and medical and health policies. All these articles are available on the LIAM website at www.liam.org.my.
IN GENERAL THE AVERAGE PROTECTION GAP OF EACH MEMBER (FOR A FAMILY OF 5 MEMBERS) IS BETWEEN RM100,000 to RM150,000 THE AVERAGE PROTECTION GAP FOR FAMILIES (2 ADULTS AND 3 CHILDREN) WHOSE PRIMARY WAGE EARNER HAS BOTH LIFE AND MEDICAL INSURANCE WAS RM553,000 PER FAMILY
FAMILIES WHOSE PRIMARY WAGE EARNER WAS COVERED BY A LIFE POLICY ONLY AND NOT A MEDICAL POLICY HAD A SLIGHTLY HIGHER GAP, AT RM642,000 PER FAMILY
THE AVERAGE PROTECTION GAP FOR THE GROUP HEADED BY A BREADWINNER WHO WAS NOT COVERED BY EITHER LIFE OR MEDICAL INSURANCE WAS LARGEST, AT ABOUTRM 723,000 PER FAMILY
AS OF END 2014 THERE ARE ABOUT 85,354 LIFE INSURANCE AGENTS REGISTERED WITH LIAM.
20,236 BANK EXECUTIVES REGISTERED WITH LIAM.
Q What are the key factors that could contribute to the success of life insurers in the near future?
Among the key factors are:
Product innovation. The insurers need to come out with products that meet the changing financial needs of its customers e.g. offering more affordable coverage for retirement needs.
The deployment of technology for ease and convenience of servicing the customers from the start of assessing their needs to offering financial solutions and payment of claims. Expansion of distribution channels to reach the different segment of consumers. The agency force is still the main distribution channel in Malaysia, followed by bancassurance. As of end 2014, there are about 85,354 life insurance agents and 20,236 bank executives registered with LIAM. Over the next few years, the revolution in mobile devices, internet usage and social networking may change the way consumers (especially Gen Y) connect, interact and transact with businesses. With the rising influence and usage of mobile phones and the internet, there is a need to explore possibilities of adding these to a company’s multi-channel distribution for insurance.
It is important to ensure that our products are sold based on needs of the customers. In addition, we need to train our intermediaries to provide appropriate advice to our customers so that they can make an informed decision of the insurance plan that they intend to purchase. Q Can you share the Malaysian life insurance industry’s experiences that have brought the industry to a higher level and can be of reference to other players in the region? LIAM plays a pivotal role in advocating professionalism and high quality of service of insurance companies and distribution channels. The consumer confidence that LIAM has nurtured over the years should continue to be a trademark of our responsibility towards consumer protection. We believe that through the decades of our self-regulatory efforts, we have laid a strong and solid foundation for industry guidelines to complement the regulations instituted by the Government.
Some of the major initiatives include: