Technology to drive motor insurers earnings

PETALING JAYA: Insurers and takaful operators, whose bottomlines have been tapering, is set to see improvement in earnings following the implementation of the free-pricing mechanism of motor insurance on July 1, thanks to technological initiatives. 

Analysts told StarBiz that the various digital initiatives being planned or bring rolled out like telematics in the general insurance space will reduce operational costs and claims ratio and improve earnings going forward.

The free-pricing mechanism under the second phase of the motor insurance detariffication was fully implemented on July 1. The only exception is the approval required for 10% in price deviation. 

Analysts concurred that the move would promote innovation and competition which would see more tie-ups with telco providers and other technology players. 

These initiatives, they said would see better margins among motor insurers, which currently make up the bulk of the general insurance market.   

Motor insurance currently comprised about 46% of the general insurance market, which is a majority segment in the RM20bil industry.  

MIDF Research firmly believe that there would be a pick-up in earnings growth following the detariffication. 

“At this juncture, the earnings of insurance and takaful companies are still stable. Despite the positive industry growth over the years, we noted that it is tapering. However, we are firm in our belief that there will be a pick-up in growth following detarriffication. 

“Considering that motor insurance will remain as the dominant class of business underwritten, we foresee liberalisation as an impetus that will generate significant impact on the overall insurance industry. 

“This is premised on the fact that insurers and takaful operators will ramp up its efforts in retaining existing customers and concurrently acquiring new ones, as evident by the new initiatives being planned out. This will ensure sustainability in growth for the foreseeable future.”

The research house some of the some of the potential tie-ups have been in a non-conventional manner where insurers are adopting more inventive strategy to expand or/and protect its market share. 

Tie-ups between telco providers and insurance players have emerged on a notable scale, taking advantage of any technological synergy, it noted.
For example, Tune Protect Group (TIH) has started a partnership with Digi to develop the implementation of telematics in vehicles. 

“We view that this collaboration will enable panel insurers such as Tune Protect gaining access to driver analytics through an advance platform. 

“This will not only make its data collection more reliable, with real-time driver data collection, but the platform will also provide competitive advantage to the company as it will enhance its capability to provide better pricing. 

“As such, we believe that its early move to telematics technology is well-timed, giving it the first mover’s advantage. Notably, we understand that most insurance and takaful providers have started to embrace telematics and are currently exploring the technology given its disruptive nature, MIDF said. 

As of this writing, it noted that Pixelated Sdn Bhd’s Katsana has just signed memoranda of understanding with several insurance and takaful players such as Allianz Malaysia, Etiqa Insurance and Etiqa Takaful to develop the use of this technology via usage-based insurance.

The use of telematics would encourage safer driving habits, while reducing insurance claims loss ratios and risks for insurers. 

In regard to the claims loss ratio, it expect it will be downtrending due to the ability to track and locate lost cars using the telematics technology. 

However, for now, this technology is largely used to provide discounts as a reward to motorists with good driving behaviour. 

Although the creation of online channel may cannibalise the sale from bancassurance and agency, MIDF said it believe that this transformation is a step in the right direction as online is proven to be a more cost-efficient channel as exemplified in other regions such as Europe. 

It will expedite the claims process, reducing unnecessary operational cost and this would mitigate the impact from compression in margin caused by the potential price war, it noted.