LAST year saw some dramatic and aggressive changes in corporate behaviour among life insurance players, with many setting high sales targets on marketing personnel.
Keen competition also showed up the health of individual companies seen in the context of persistency, forfeitures, claims' rates and investment trends.
Interviews with four chief executive officers (CEOs) revealed there was still cause for optimism, even as the percentage of insured in the country remains dismally low at 27%-30%, and investments in traditional financial instruments are being placed in the back-burner, at least until market conditions improve.
We are still cautiously optimistic about the outlook for the KLSE Composite Index this year provided the US economic scenario stabilises and shows tangible signs of improvement. We will then increase our equity exposure in the short- to medium-term and focus on the domestic beneficiary sectors,'' Asia Life (M) Bhd CEO Tan Beng Wah said.
What is Asia Life's experience when it comes to surrender of life policies?
Tan said the company's policyholders' were a prudent lot'' and did not tend to be badly affected by the less vibrant economic environment over the last few years and persistency had in fact improved consistently, bucking the trend of the life industry.
(Persistency is the level of retention of a life insurance policy over a given period of time, depending on the chosen terms of a policy. Forfeiture is the termination of a policy within the first three years of the commencement of a policy, while cancellation or surrender of a policy occurs after premiums have been paid for a minimum period of three years or more).
Tan described the claims' experience of the company as relatively stable and added that claims' frequencies and ratios on health insurance and critical illnesses had increased slightly over the past four years.
It is an increase but that has not caused any alarm. The increases are a reflection of a rise in medical costs as well as some abuse of the benefits by a small number of policyholders,'' he said.
L. Meyyappan, CEO of MCIS Zurich Insurance Bhd, one of the largest local composite players, said his company saw an improvement in persistency because of the shift in market focus.''
Our experience has been that persistency of life insurance policies continued to improve due to the gradual move away from the lower- and middle-income market over the past one year to the upper middle- and higher-income groups,'' he said.
Has termination of life insurance policies affected the company's business outlook?
We have had an issue as far as early termination of policies within the three-year time frame. However, our experience with surrenders falls in line with the industry level at 2%,'' Meyyappan said.
He said there was a noticeable and growing tendency for early claims soon after a policy was effected.
In fact, he said, there was a certain element of selection'' against the company in this case, and in some instances some early claims were even fraudulent.
Are the increasingly selective'' spending habits of consumers these days having a dire impact on the sale of life policies?
Meyyappan said MCIS Zurich was still continuing to enjoy a healthy growth of 10%-15% in life insurance sales, noting that life insurance was not being strictly viewed as an expense.''
ING Insurance Bhd senior vice-president Steve Ong Chong Gian has perhaps the most convincing story to tell.
Over the past few years, our policyholders' persistency rate has been around 90%, which shows that our current policyholders are satisfied with products and after-sales services,'' he said.
ING uses policyholders' persistency rate as a critical performance benchmark indicator to ensure that they continue with their policies. And, to ensure that the high persistency rate is maintained, the company's customer service centres have a policy conservation programme in place to respond and advise'' policyholders on the need to continue their policies when they are thinking of surrendering.
These include various measures like taking policy loans which are available to assist policyholders when they have financial needs, as well as providing alternate solutions to re-structure their policies instead of terminating coverage with us,'' Ong said.
Asked how the consumer market was reacting to ING's marketing strategies, Ong said that the company offered both traditional and investment-linked products and the current preference was towards traditional savings products.
This is linked invariably to current equity market uncertainties as well as consumers' need for more stable returns in savings' policies,'' Ong said.
On rising claims costs, he said the life insurance industry had in recent years, been facing increasing medical claims due to escalating health and medical costs, and as a result many players were suffering losses.
Allianz Life Insurance Malaysia Bhd CEO Vincent Kwo said his company's persistency rate had generally been quite stable over the last few years and last year was no exception.
Our 13-month persistency rate for the FY2002 was approximately 85%, which means that on average, for every 100 new policies that we wrote, approximately 85 of these policies were still in our books 13 months later,'' Kwo said.
While persistency is important to the Germany-based company, the qualified actuary said there were other aspects of business experience that were equally critical to ensure that premium rates charged by the company continued to be sufficient to meet benefit payouts and expenses incurred.
In view of the continuous uncertainty in the interest rate outlook, it may become necessary for the insurance industry to consider another re-pricing exercise in the near future,'' he said.
According to Kwo, the flip side to all this is in the event the investment outlook does improve (after the re-pricing exercise), the consumer may be in a position to enjoy higher bonuses or dividends on their policies, should the overall company business experience improve (in line with the improved investment environment).
Life companies, unlike general insurers, have been spared the burden of rising reinsurance costs, a key business factor that works in the former's favour.
Yet, many of them know that the path ahead is going to be even tougher this year as they contend with two critical realities the presence of too many large and well-poised players going for the same piece of cake, and an increasingly discerning customer base that will expand only if premiums charged are considered affordable.