The insurance industry needs to take a long term view and start taking meaningful steps to address the gaps in the market to make insurance accessible to all, said Bank Negara Malaysia Governor Muhammad bin Ibrahim.
In this extract of his speech at the Malaysian Insurance Summit, we take a look at the steps the Governor listed:
Products and delivery channels
Firstly, products and delivery channels need to be diversified and redesigned to be better suited to the whole population. This must entail a renewed focus on protection needs especially for first-time buyers. The Bank is partnering with the industry to roll out “Perlindungan Tenang”, a national branding and communication platform in the near future. Perlindungan Tenang is intended to reach 8 million working-age Malaysians and over 700,000 micro enterprises that currently need insurance and takaful protection against key risks.
Products that meet the three criteria of being: Affordable, Accessible and Easy to understand. This product will carry the Perlindungan Tenang logo and benefit from regulatory flexibilities and co-branding and promotional initiatives. The aim is to address ‘pain points’ that commonly hold consumers back from purchasing insurance and takaful products. To-date, four insurers and two takaful operators have developed products that will be introduced under this initiative and we expect many more to come on board.
Digitalisation to revolutionise customer experience
Secondly, the industry needs to embrace digitalisation to revolutionise the customer experience. Many of the factors that make digitalisation possible in other sectors, such as a high mobile penetration rate of 134% and the proliferation of new technologies, are also available to the insurance and takaful sector. The banking industry has made significant strides towards enhancing the take up of financial services delivery through the use of technology. In 2016, there were 22.8 million Internet banking subscribers which represents over 70% of the total population.
The insurance and takaful sector needs to catch up. Today, online insurance distribution still accounts for less than 0.1% of business volume. A very poor achievement. With consumers already enjoying benefits of digitalisation in many other daily activities, they should expect better levels of personalisation, responsiveness and reliability from their insurance and takaful experience. This includes shorter time-to-compensate for insurance claims.
In terms of the migration to e-payments, the insurance and takaful sector is a key sector where the usage of cheques is still prevalent. In 2016, 2.3 million cheques were issued by insurance and takaful companies while 9.8 million cheques were collected by such companies from their customers.
While good progress has been made this year with the decline in cheque collection accelerating from -0.5% in 2016 to -22.1% in the first 7 months of 2017, more effective and creative measures are needed to drive cheque usage to negligible levels. To this end, Bank Negara Malaysia has recently concluded a consultation exercise with the industry on the implementation of an e-Payment Incentive Fund Framework (ePIF).
Under the framework, insurance companies shall set aside MYR3 for every cheque issued and MYR1 for every cheque collected to be used as incentives to encourage their customers, agents, service providers and government agencies to migrate to e-payments.
The current practice where agents collect premiums from customers in cash and make payment to insurance and takaful companies using the agencies’ own cheques or credit cards should stop. The industry should promote greater prudence and transparency in the collection of customer premiums by facilitating customers to make direct payments to the insurance and takaful companies. To this end, the industry equipping agents with mobile point-of-sale (mPOS) or mobile apps to collect payment directly from customers should be the norm.
Collaborate on key market infrastructure
Thirdly, the industry needs to collaborate and invest in key market infrastructure and arrangements. These should support at least four key objectives, to enhance access to insurance; increase efficiencies in claims processing; promote fair competition and provide additional choice for consumers as well as provide a strong mechanism to prevent frauds and cheats. This is important not only to deliver a superior customer experience, but also to control leakages, manage costs and ensure sustainability over a long term. It will also position the industry to compete and position itself more effectively as we move forward as the disruptive forces of competition, including from non-traditional players, continue to gain traction. It will also prevent leakages arising from abuses, misrepresentation and fraudulent claims.
In the immediate term, the industry needs to set its sights on creating a convenient and seamless first-loss-notification process that leverages on shared infrastructure. Such a process should eliminate intermediate processes that are currently adding costs and enabling abuse and fraud to take place. Certain infrastructure should not be considered as a competitive edge. We have raised this issue many times. Sharing infrastructure and information among industry players is very important, but efforts towards this have been quite disappointing.
The establishment of the ISM Fraud Intelligence System marks a significant first step in this direction. Deploying the latest data analytics and network analyses, the Fraud Intelligence System is a milestone in the industry’s efforts to combat fraud, especially in the motor business.
This is a long overdue development and I note that the first phase has successfully gone live in September 2017 with four pilot insurers. Its success and benefits will very much depend on achieving the widest possible network effects. We expect all insurers to support these arrangements. Insurers who refuse to participate in this scheme will be looked upon unfavourably. We shall also take note of these recalcitrants’ failure to participate for a common good.
Create strong talent pipeline
Fourthly, insurers and takaful operators need to invest individually and collectively in creating a strong talent pipeline for the industry. We need to take stronger measures to professionalise the insurance workforce and foster the highest standards of conduct and competence. As the benefits of upskilling will accrue to the industry as a whole, talent development should also be a collective endeavour. Only through collective effort can this be achieved.
In this regard, I am pleased to announce the establishment of a Talent Development Fund, funded by the industry that will be made available to support professional training and development initiatives for the sector. This will include the introduction of appropriate professional qualifications for key strategic and operational roles in the industry.
Finally, there will be deeper engagements with shareholders, boards and management of individual insurers and takaful operators on the development agenda for the industry. We will make clear the areas of development focus in the coming years. Regular engagement with candid assessment of individual company’s performance will pave the way for companies to make more significant contributions to development objectives. And we shall rigorously measure insurers’ performance. Failure to register favourable achievements will have its own consequences.
Governor Muhammad bin Ibrahim’s full speech can be found here.
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