We don’t have enough

Most Malaysians will struggle to cope with a health crisis, while loved ones will face difficulties after a breadwinner’s death because we simply do not have enough insurance coverage. To address this, Bank Negara is introducing a new insurance framework to increase penetration and transparency.

MALAYSIANS are grossly under-insured. And those who have insurance aren’t adequately covered.

But offering policies with higher sums assured won’t work because life insurance is not a priority for most Malaysians, says Victor Kho, president of the National Association of Malaysian Life Insurance Fieldforce and Advisers (Namlifa).

The younger generation especially would rather spend their money on smart phones and luxury goods – which actually are way pricier than insurance payments, Kho says, pointing to how a life policy can cost as little as RM100 a month.

“No one has ever gone bankrupt because they bought insurance. How much do you pay for your car insurance? A basic life policy is a fraction of that. So not having enough money is a poor excuse,” he argues.

And among those who have insurance, the protection gap keeps widening because they’re reluctant to review their policies. They think agents just want to make a sale. But the reality is that with rising healthcare costs and changes in your dependants’ needs, more protection is a must, Kho explains.

Quoting the “2013 Protection Gap in Malaysia” study, Life Insurance Association of Malaysia (Liam) president Toi See Jong says four to five of every 10 Malaysians don’t have life insurance. And those who do have some don’t have sufficient coverage for their loved ones.

Putting things into perspective, Prudential Assurance Malaysia chief marketing officer Khoo Ai Lin says only half of the population have some form of life insurance. And yes, those who are covered just don’t have enough.

When you buy a life insurance policy, the rule of thumb is to insure a sum equivalent to 10 times your annual salary, she explains.

“With Malaysia’s gross income per capita of RM32,000, the current average sum assured of RM50,000 is far below the ideal amount one should be insured for.

“This means that Malaysians are generally unprepared for rainy days. Imagine if something unfortunate were to happen to the family’s breadwinner and they’re only left with a RM50,000 life insurance policy. Today, RM50,000 will not get the family very far. They may have difficulties sustaining their current standard of living,” she says.

There’s a growing demand for insurance products with savings and investment elements but the level of awareness among Malaysians about protection is low. Our ­premium contribution is only 3.1% of the GDP in 2014 – much lower than Taiwan (15.6%), Hong Kong (12.7%), Japan (8.4%), and Singapore (5%), according to Bank Negara.

To promote long-term growth and a more competitive market, the “LIFE Framework” was developed by Bank Negara. It completed its public consultation on the Framework in 2014 and it has been implemented in phases.

In a statement, Bank Negara says, “Currently, most consumers buy life insurance or family takaful products through an intermediary like an agent. But there are those who are financially literate and savvy enough not to need financial advice or product recommendation. Online products will then appeal to them with straight-forward, easy to understand, and solely for protection products.

“Like online banking, an online account will be introduced by all insurers and takaful operators for policy owners and takaful participants to obtain information on the status of their policies and certificates, and get real-time updates and downloadable transaction forms easily.”

With the Framework, insurers and operators will have greater flexibility to manage their expenses. This encourages product innovation and is beneficial to consumers. The industry, however, must continue to safeguard con­sumer interests in this more liberalised environment, according to the Bank’s statement. For example, in the case of investment-linked products, they must ensure a proportion of premium contribution is allocated to the unit funds, before deduction of charges.

Kho hopes the Framework, aimed at liberalising the industry, succeeds in increasing professionalism and penetration. Whether it gives rise to higher premiums, he thinks, will be determined by market forces. The relevant authorities must, however, manage the rising inflation of medical costs and distribution costs. And, insurers must be fair to consumers. Don’t increase premiums unnecessarily just to make a huge profit, he says.

“Blaming the high distribution costs on agents to justify hiking premiums is wrong. We must be properly compensated for getting new business and providing life-long service.”

The impact of opening up the industry is that insurers will have greater control over the products they introduce and agents’ commissions and premiums will all be determined by demand and supply, Kho explains.

Assuring consumers that they will be protected, he says complaints about errant agents or insurers can be made to Bank Negara. And, Namlifa’s role, he insists, is to ensure both members and consumers benefit because when policyholders suffer, agents suffer too.

“There are 18 insurance companies for consumers to choose from, so be smart and shop around. The pricing will be competitive but don’t just go for the cheapest policy because you could end up much poorer in the long run when you find that you are not adequately protected,” he warns.

There are, however, many areas of the industry still in need of improvement. Namlifa, Bank Negara and Liam have their work cut out, he admits, stressing that there is a need for an extensive public awareness campaign on the importance of adequate protection.

There must be a concerted effort by Bank Negara to control inflated premiums and the escalating cost of medical policies, he says. And a holistic approach, especially when coming up with products, is needed.

Most insurers have shifted from traditional protection-based products to savings and high-investment types with higher premiums and bigger profit margins. The risks of such products are higher for consumers compared with protection policies, he cautions.

The basic coverage in an investment-link policy is, by default, up to age 100. Medical and critical illnesses are add-on benefits. These can expire at age 70, 80, 90, or 100. The medical card alone takes up 70% of the policy cost, leaving a meagre sum for coverage, he says, explaining why coverage in the event of death or total permanent disability is low.

Can policy-holders continue paying for the policy in the long run if the costs are so high, he asks, adding that unlike traditional policies, investment-link products transfer protection risks from insurers to policy­holders.

Denying that agents are guilty of pushing investment-linked products instead of protection policies, he says they can only sell what insurers offer.

Prudential recommends a longer period of coverage because life is unpredictable and while we may be healthy at 80, we could fall ill or meet with an accident after that. Malaysians are living longer, Kho rationalises. Our average life expectancy has increased to 73 and 75 years for males and females. So we need a medical plan that will last through the golden years.

“Many medical plans have a range of coverage limits and even go up to 100 years old. If our coverage ends at 80 years old, we’ll have to rely on our savings to cover our medical bills after that.”

Get sufficient medical coverage while you’re young and healthy instead of trying to buy insurance after you’ve been diagnosed with an illness, Liam’s Toi advises.

Most of the contract provisions are the same but there are different types of policies for different needs, budgets and circumstances. Always compare, consult, and confirm the terms and conditions before deciding on the right plan for you, he adds.

“Some products are flexible enough to be changed but life insurance is a long-term commitment. Make sure it fully meets your requirements before you commit.”

Always add a zero to your annual income to gauge the protection amount needed, Kho offers, because this sum will give your family at least 10 years to adjust to the change in their financial situation.

“Unlike in other countries where consu­mers ask: ‘How much will the family get when I die?’, Malaysians want to know how much they will get back from the policy before they die.”

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