Tough times ahead for insurance if nothing improves

Allianz Malaysia CEO Zakri Khir

WHILE it has been able to make some profit during the Covid-19 pandemic, growth has been impacted and insurer Allianz Malaysia Bhd is getting an ominous sense of things to come ahead.

The insurer, which has the biggest market share in the general insurance industry, is concerned that continued lockdowns which have impacted car sales will continue to weigh heavily on its outlook ahead.

The insurer likens what’s happening to the economy now to how a big tsunami progresses, whereby people in the inner lands may get a false sense of security but would inevitably be devastated should the waves suddenly gather enough momentum to hit the inner or higher lands as well.

“With so many lockdowns, we still have not been able to rein in the infections and this is a big question mark. This weighs heavily on the economy: if you are not getting any income you would protect whatever you have left by not spending. And unless we get out of this particular situation it is going to be a cold dark winter,” Allianz Malaysia’s chief executive officer Zakri Khir tells StarBizWeek.

Allianz Malaysia points out that the automotive industry through the Malaysian Automotive Association (MAA) had recently warned that many car dealerships would soon have to close down should lockdown restrictions continue.

“Motor insurance plays a huge component in the general insurance industry, so when there are no new cars and even when Road Transport Department had to shut down: people could not do transactions. All these have resulted in a regression of the consumption in general insurance products. Due to this we are seeing a downtrend in general insurance,” Zakri says.

He notes that growth in the general insurance segment for Allianz Malaysia has been flat from last year in the seven-month year-to-date period. “There is this human element behaviour that is involved in the purchase of insurance products,” he says.

Allianz Malaysia is the biggest motor insurance provider in Malaysia and its motor portfolio constitutes 66.4% or RM1.56bil of gross written premiums in general insurance last year, while the remainder of its portfolio is made up of property, health, personal accident, liability, marine and others.

In its most recent reported first quarter (Q1) ended March 31, Allianz Malaysia’s general insurance segment’s operating revenue fell 0.9% from the preceding Q4 due to lower gross premiums earned, while pre-tax profit in this segment dropped 29% in the said periods as well.

Zakri says general insurance is also impacted now that people and companies are generally not able to buy new assets. “These are not limited to vehicles, but assets such as houses. Although there are a lot of virtual showrooms, etc, I dare say that people don’t just buy these items by looking at it through the computer,” he says.

In its recent statement, MAA said automotive players were not able to deliver and complete sales despite some orders that are coming in during this period.

Meanwhile, commenting on its life insurance segment, Zakri says the company has been able to see some growth in this area as sales are also motivated by how secure people feel. “People who still have money are buying life insurance, and we are getting sales from here. Not fantastic but good enough as people are still purchasing life insurance,” he says.

In its most recent Q1, its life insurance segment saw a 9.7% increase in operating revenue from the previous consecutive Q4 but the bottomline for this segment posted a pre-tax loss of RM20.2mil or a 137% drop due to higher fair value losses on investments and an actuarial surplus transfer in Q4 of 2020.

Zakri also notes that it is difficult to plan ahead properly as a company now, given the fluid situation with regards to how the Covid-19 pandemic is developing.

“Now, we dare not plan too far ahead and plan on a month-to-month basis for we do not know what is going to happen tomorrow or the day after. It has come to this point now, as there are new standard operating procedures that impact how we work or buy things every now and then,” he says.

“On our outlook, we won’t be unprofitable, neither are we going into negative territory and neither are our policyholders going to be impacted. We are at this stage where we can launch many new products, but the question is: will the customer buy it? People’s priority would now be to put food on the table and insurance will be (something) secondary,” he adds.

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