The insurance industry is expected to go the extra mile as it braces for the challenges of meeting the customers’ needs, including exploiting new growth areas.
Unlike in the past where an insurance product was sold to meet a specific need, the insurance industry going forward would see greater emphasis on meeting customers’ comprehensive financial planning needs.
This means an insurance product would encompass the three vital components of financial planning – wealth creation, wealth protection and wealth distribution.
The agency-based system too would need to be transformed to a more professional level to meet the growing need of customers amid rapid changes in the financial services landscape.
Financial planning
The Life Insurance Association of Malaysia (Liam) president Md Adnan Md Zain says: “Wealth is created or accumulated through various medium to long-term savings plans available through life insurance such as endowment and investment-linked plans.
“Protection is through pure life insurance plans that cover death, disability, critical illness and medical costs, whereas distribution of wealth can be in the form of nomination of beneficiaries and assignment of policies that allows one to distribute ones’ wealth according to ones’ wishes when a person dies.”
The association foresees that financial planning will be carried out in a more integrated approach and the industry will roll out plans tailor made to suit individual needs, he adds.
According to Adnan, flexibility will also be built in to allow changes to the plans to accomodate the changing financial needs of customers.
Malaysian Assurance Alliance Bhd CEO Muhamad Umar Swift says the current economic conditions is a wake up call for the industry to reassess how it has been managing its finances, as well as protecting and saving it.
The industry, he says will continue to assist policyholders to save adequately for the future and protect themselves and their loved ones. “In the shorter term, emphasis would still be on protection products or those with guaranteed savings element.
“But given the recent strong performance of equity markets, I believe we will soon see a rebound in the appetite for investment link products,’’ Umar says.
The General Insurance Association of Malaysia (Piam) executive director C. F. Lim says the long-term objective of the industry must be to maintain the essentials of a healthy and resilient system, prepare for greater levels of competition, and optimise the allocation of capital.
Ultimately, Lim adds, it is consumers who will be the main beneficiaries from the widening of choices and improvement in competitive pricing.
Professionalism
To meet the growing affluence of Malaysians and enhance professionalism in the industry, Liam together with Bank Negara, the Malaysian Insurance Institute and the National Association of Malaysian Life Insurance and Financial Advisors, initiated the move to develop a Malaysian-based financial planning programme.
The Registered Financial Planner (RFP) course is the first local financial planning programme developed in Malaysia in 2002.
It is a broad-based programme which provides practitioners with skills and knowledge that are applicable to other sectors such as client relations, risk management, personal finance and others.
The RFP qualification is a pre-requisite for registration as financial adviser under the Financial Adviser Licence by Bank Negara and Capital Markets Services Licence by the Securities Commission.
As consumer awareness of the importance of insurance rises, they will demand for more knowledgeable and professional agents to provide them with relevant financial advise, says Great Eastern Life Assurance (M) Bhd director and CEO Koh Yaw Hui.
“Agents are therefore required to improve themselves to stay competitive in the market. With this move, consumers will likely buy more because via financial planning, more of their needs will be met and the confidence level of consumers will be enhanced with higher degree of professionalism,’’ Koh notes.
Sustainability of business
To ensure the future sustainability of their businesses and take the industry to the next level, Adnan said insurers should consider various relatively untapped areas.
One of these is retirement planning, which is still in its infancy in Malaysia, he adds.
For the retirement market to take off, he says product innovation is key and so are proper tax incentives to encourage long-term savings, as well as drawing down one’s retirement savings in instalments (annuity), instead of a lump sum.
Another area of growth, according to Adnan, is medical insurance, which is in line with rising inflation and improvement in longevity.
ING Insurance Bhd president and CEO Datuk Dr Nirmala Menon says the life insurance business is a sustainable one as people would need protection in different stages of their lives, more so in the midst of an economic downturn, where they are looking for security.
“To capitalise on this opportunity, we need to be close to the customer; to understand their changing needs as well as to fulfill that need. We truly believe that insurance products need to be customer-centric and simple.
“The distribution landscape has also changed with bancassurance playing a more important role in the delivery of insurance products. Our partnership with Public Bank makes us a key player in this sector and we will continue to grow this channel to its fullest capability,” she explaines.
She says ING, among others, will bank on its three-pronged strategy to put it on a stronger footing to meet the future competition and challenges.
This strategy, she says, include a balance book of profitable business emphasising both traditional and investment-linked products, strengthening the company’s multi-distribution channels via its tied agency, bancasssurance and employee benefits channels, as well as focusing on customer centricity.
For Great Eastern, Koh says to sustain the company’s business in the future, it is focusing on five key areas, namely: enhancing the professionalism and productivity of its distribution channels, providing consistent and excellent service and support to policyholders and distribution channels, strenghtening product manufacturing capabilities, improvement in the efficiency of the delivery system, and to continue promoting life insurance as a rewarding career to attract more people to join the agency force.
Future challenges and growth drivers
On future challenges and key drivers for growth, Adnan says the industry must be prepared to meet the ever increasing consumer demand.
To this end, the industy has placed great emphasis in investing in education for their staff and agents to provide better service to customers.
Information technology is another area where heavy investment has been made to improve efficiency and provide wider reach to customers. Innovation will be one of the key drivers to propel the industry to be a major player in the financial services sector, he adds.
This includes developing new products to meet the different niche markets, using more effective distribution systems, providing higher degree of disclosure of information to customers and improving service standards.
Umar says the consolidation of the industry will also drive growth as larger players will enjoy economies of scale that will provide a competitive advantage when compared to smaller players, thus, allowing them the luxury of investing more in systems and processes.
Lim says achieving a good balance in ensuring that consumers are well-protected while simultaneously ensuring that they enjoy the benefits of a competitive and innovative market, is essential.
In this regard, he says the new risk-based capital framework would ensure the solvency of insurers in difficult market conditions on the one hand, but at the same time, enables insurers to provide protection to consumers from risks at appropriate cost and enhance the efficient use of capital.
“Another key issue to be addressed is developing a balance between insurers’ costs and customers’ premiums, which is primarily driven by claims experience and the risks underwritten. As an industry, there are clear benefits to prevention and reduction of these risks, and reducing the frequency and cost of claims.
“This will in turn help bring down the cost of insurance, increase profitability, grow markets and ultimately, improve customers’ experience overall,’’ he adds.
He says it is imperative that the industry develops new and effective strategies to promote these objectives, especially in the motor and medical and health insurance sectors. Tackling insurance fraud and financial crimes will also be prime objectives of insurers to manage claims costs, Lim notes.
