How to virtually bridge the protection gap

BANK Negara has been busy addressing concerns about skyrocketing health insurance premiums that have been making headlines in the mass media.

Earlier this week, the central bank, via a post on its official website, says that it has received an encouraging response from various parties to submit applications for Digital Insurers and Takaful Operators (DITO) licences just three months into the two-year application window that began on Jan 2.

The positive response reflects a strong belief among industry players to push for greater innovation to enhance the insurance and takaful industry.

This is relevant as the latest statistics from the Life Insurance Association of Malaysia (LIAM) indicated that as of 2023, Malaysia has a life insurance penetration rate of just 58.6%, with more than 40% of Malaysians remaining uninsured.

The development flies in the face of comparisons made with more advanced countries such as Singapore and Japan which are estimated to have a life insurance penetration rate of 80% and 90% respectively.

Bank Negara says efforts to close the insurance protection gap remain uneven with unmet needs still prevalent among the underserved and unserved segments of society.

It calls on the insurance and takaful industry to innovate and bridge the gap in the interest of helping consumers prepare for unexpected events.

LIAM chief executive Mark O’ Dell tells StarBiz 7 that to fill the uninsured gap and increase the level of protection for the population, the market needs an expansion of distribution capacity.

“We should see diverse solutions at different accessibility levels to be able to cater to the affordability of various customer segments.

“As such, we believe DITOs will play a role in expanding accessibility, resolve to the affordability issue and offer diversified solutions to reduce the insurance gap of the population,” he says.

The important question though, remains: Would the unserved and underserved segments of the market be motivated to purchase insurance digitally on their own initiative?

Recognising the challenge, O’ Dell says affordability, simplicity and accessibility of solutions will be important to motivate the people to expand their protection coverage.

On this issue, Dollars & Sense Solutions Sdn Bhd executive director and veteran insurance practitioner Francis Low remains sceptical, explaining that while digital adoption among consumers in the insurance industry is on the rise, Malaysians need to be “sold” life insurance by human practitioners.

“Major banks such as Malayan Banking Bhd, CIMB Group Holdings Bhd and AMMB Holdings Bhd offer online bancassurance and takaful products, including life assurance.

“Therefore, we believe that newcomers in the DITO industry may also face significant challenges to emerge with offerings, and differentiate themselves from these trusted institutions.”

O’ Dell points out that the skills and capabilities of banks and insurers in respect of products and services are different, emphasising that DITOs will play an important role in increasing insurance penetration.

“Digital banks will also support the expansion of distribution capacity to reach wider segments of the population,” he says.

On a separate note, Low says the level of financial awareness in the country needs to be improved significantly, making the case that the segments which are initiated to purchase life insurance or family takaful are more likely to be from the affluent or educated group.

“This group has heightened financial awareness, who undoubtedly also would have been approached frequently by insurance agents and bankers.

“However, the aim of DITOs is to cater to the unserved and underserved segment, which to us would translate to be the uninsured and underinsured,” Low remarks.

He is of the opinion that financial literacy among the population is crucial even though the affluent segment of the population is perceived to be the major group that would utilise DITOs.

Echoing O’ Dell’s view, Low says DITOs need to offer simple solutions at affordable premiums that the unserved and underserved would find relevant.

In addition they should provide financial literacy programmes that will improve insurance awareness.

“For example, DITOs can begin to market term life insurance products or standalone medical products with benefits that are easy to understand akin to a motor insurance,” he says.

Bank Negara governor Datuk Seri Abdul Rasheed Ghaffour hopes that DITOs will further strengthen the financial system with more inclusive, competitive and efficient offerings in line with the evolving needs of the rakyat.

Recognising such opportunities, the central bank says DITOs are expected to offer significant value in terms of inclusion, competition, and efficiency.

“Applicants are expected to understand and address the protection needs of the digitally focused consumer segments by offering tailored products and services.

“They should aim to enhance efficiency in their end-to-end operations to deliver a seamless customer experience.

“Alongside the existing insurance and takaful operators, DITOs can strengthen the financial system by fostering responsible innovation for Malaysians and achieving the goals outlined in the Financial Sector Blueprint 2022-2026,” says the central bank.