The adoption of insurance technology (insurtech) by many insurers in recent years has changed the way insurance products are developed, processed and sold. The push for more technological solutions by regulators and consumers has also seen the industry come up with enhanced services and attractive offerings.

The word “insurtech” was coined after the word “fintech” (financial technology) became increasingly popular. It broadly describes the use of technology to improve the customer experience and efficiency of existing insurance processes as well as come up with ground-breaking products.

Elmen Tan, chief operations officer at AXA Affin General Insurance Bhd, looks at insurtech as a way to leverage digital technologies and automation to drive simplification and efficiency in everyday processes and workflow, as well as develop innovative products and solutions to address the changing needs of customers.

For others like Tune Protect Group Bhd group CEO Khoo Ai Lin, insurtech can be applied to various aspects of the industry, from product ideation, development and innovation to underwriting, sales and marketing, after-sales service, claims processing and payments.

She recalls the days when the insurance industry was undergoing digitalisation and developing the capability to deal with the sales process via laptops and iPads. The industry has evolved tremendously since, with customers now being able to purchase products such as travel insurance via mobile apps.

The channels through which customers are able to buy products and services have also evolved in the last decade. From conventional channels such as the agency force, brokers and corporates, it has now adopted channels such as bancassurance, affinity partnerships and telemarketing, says Khoo.

Affinity insurance is any type of insurance linked to a service or product distributed by a company (not always in the insurance business) that is not the customer’s main purchase motive.

When internet banking became popular in Malaysia between 2000 and 2010, it was only natural for the insurance industry to follow suit. “Further digitalisation took place with e-tools that increased operational and process efficiency such as e-payments. Then came the aggregators, followed by fintech and insurtech players in 2015 and 2016,” says Khoo.

“The regulators are opening up and becoming more receptive to digitisation and providing the platform for insurers [and other financial service providers] to be innovative in their products and services.”

One example of this is Bank Negara Malaysia’s Financial Technology Enabler Group (FTEG), established in June 2016 to support innovations in the space. It also introduced a regulatory sandbox so that fintech players could test their products in a live environment before deploying them.

In March 2016, the central bank announced the phased liberalisation of motor and fire insurance. The detariffication allowed for the removal of the tariff structure or fixed premiums so that insurers could charge premiums that corresponded with the risk profile of their consumers.

PolicyStreet co-founder Winnie Chua, who has been in the insurance industry since 2010, says discussions on the detariffication of motor and fire insurance started in the early 2010s, but nothing much happened until 2014.

Detariffication also gave birth to the inevitable need for insurance companies to digitise their internal processes and build their own operating systems. With the ability to charge premiums based on the risk they can take, insurers looked at creating better products at cheaper rates by digitising their products as well as making the back-end processes smoother to create a better customer experience.

The detariffication of motor and fire insurance since July 2017 has been beneficial to the local insurtech landscape and consumers as a whole. AXA’s Tan says market liberalisation has given companies the opportunity to be better and more efficient in serving their customer base. With consumers having more options to choose from, companies have more room for dynamic pricing of premiums based on individual needs and risk factors, instead of a one-size-fits-all model, he points out.

“Doing so will require us to leverage a lot of technology and automation. Hence, more insurance products are being redefined to improve customer centricity,” he adds.

Consumers have been receptive to the developments in the insurtech space, based on AXA Affin’s double-digit growth in its online channel, says Tan. Malaysians are also becoming more internet savvy and open to seamless and integrated experience across channels.

Khoo points out that according to a statistical report by Insurance Services Malaysia Bhd, sales (gross written premiums) via the online distribution channel grew 32.6% year on year in 1H2019.

In recent years, the insurance industry has seen an increase in technology-backed products such as telematics and the incorporation of wearable devices into insurance plans and programmes. For instance, AIA Vitality is an insurance and health programme that actively supports and rewards customers for making healthy choices by tracking their lifestyle habits through wearables such as pedometers.

Telematics, which integrates telecommunications with IT, is a recent development in the insurtech space. Telematics motor insurance works by fitting a car with a device to monitor the driver’s behaviour, speed patterns, distance travelled and driving environment. The data collected is used to assess the level of coverage a driver needs on the road. Theoretically, this would result in lower monthly premiums or rebates that are paid upon completion of the user’s 12-month policy. Locally, AXA Affin and Tune Protect offer this type of insurance.

AXA’s Tan points out that the results of telematic usage have been encouraging as the insurer has seen improved driving behaviour in the form of fewer severe claims from AXA FlexiDrive customers. “We are proud to have rewarded AXA FlexiDrive customers with an average safe driving discount of 14% a year after the inaugural launch and successfully recovered stolen vehicles worth more than RM1.2 million with the positive feedback received from customers. This proves how telematics motor insurance such as AXA FlexiDrive has made a positive impact on enhancing road safety and vehicle security,” he says.

Micro-insurance, or insurance plans with low premiums, is still in its infancy. Typically, these products are designed to cover low-value assets and provide payouts in the event of injury, illness or death. These policies are sometimes known as bite-sized, on-demand or sachet insurance. Examples include coverage for running a marathon, hiking and even mountain climbing.

For the low-income uninsured group, U Mobile offers death or total and permanent disability coverage for as low as RM5 a month. Meanwhile, the government has launched Perlindungan Tenang, an initiative to offer simple and affordable insurance and takaful products to everyone in the country.

Micro-insurance is fairly new in Malaysia, but there is growing interest, says Tan. “It is still early days, but we are seeing new trends that have led to a growing appetite for usage-based insurance. Take the pay-by-trip model for e-hailing drivers or pay-by-stay insurance for home-sharing services.

“AXA Group has launched its first tailored, usage-based insurance solution in partnership with Uber, extending protection solution to all its drivers and delivery partners in Europe. It is a different model in that it is tailored to consumers’ behavioural patterns and lifestyle, allowing them to purchase a policy instantaneously when and where it is required, transitioning from the usual purchase-and-renew operating model.”

Insurtech may be gaining headway in the country in some areas of the industry. But when it comes to product innovation, some players believe that Malaysia still lags other countries in the region. PolicyStreet’s Chua points out that innovation is only at the surface level right now. The definition of insurtech is also different here as it applies more to the distribution channel of intermediaries such as PolicyStreet rather than product innovation using technology.

“Now, insurtech is in the mainstream. Everyone we talk to recognises the importance of our existence. The question is how they treat us [digital intermediaries] as part of their overall business strategy and how we can work with them,” says Chua.

“Bank Negara is trying to be supportive [in terms of encouraging product innovation], but it does not trickle down to some insurance companies, unfortunately. For example, even the sign-up process to work with [insurance companies] takes a lot of paperwork and levels of approval. So, if a process like this [something straightforward and basic] is already lengthy, what about innovation?”

While there is a need for regulations and compliance, Chua says there has been a disconnect between what the regulators envision and what is actually being done by the industry players. This impedes the vision of intermediaries like PolicyStreet to truly innovate as they have to take care of the interests of the underwriters of the insurers they work with as well as satisfy the conditions set by the regulators.

“If we do not solve these issues, a lot of insurtech players will not be able to survive because the barrier [to come up with innovative solutions] is so high. I fear that a lot of players may find it a struggle to come into this industry in the future,” she adds.

While conventional insurance companies are now more open to venturing into insurtech, they have a bit of a balancing act in looking after the interests of their agency force and offering new digital channels, says Chua. That is because they still rely heavily on their agency force.

“Some say things like, ‘I can work with you silently and in this small area’ or ‘I have one strategy for everyone, so you all [agents and insurtech players] fight for it,” she adds.

“Insurtech has always been seen as an alternative channel, as opposed to being a leader. That is the problem. This could be due to the fact that there are so few of us in the market.”

Khoo shares the same sentiments on managing the relationship between conventional and insurtech channels. “It is important to have the commitment and determination in driving the rigour towards the development of the insurtech business as well as the ability to differentiate such products for the respective channels,” she says.

Chua agrees that changing the psyche of consumers is one of the biggest challenges, where the trust factor lies in the physical agency force for long-term products such as life insurance. For instance, when PolicyStreet started out, she tried to sell a RM100,000 life insurance plan with a premium of RM10 a month to a friend in her early twenties, but the friend was still reluctant to take on the policy.

“I told her it was the price of a cup of coffee and that the additional coverage of RM100,000 a year would give her peace of mind. I even offered to pay the premiums for her. But she did not want it,” says Chua.

“This shows that Malaysians still have a traditional mindset. We do not think about death or accidents when we wake up in the morning. It is only when we hear that someone close to us has gone through a difficulty or crisis, which may be too late by then. I don’t think anyone has managed to crack the puzzle to increasing the life insurance penetration rate.”

However, Chua is still optimistic that the country and the region will see changes, similar to those in developed markets. “For example, there are no agents in Australia. I think once the population reaches a certain education level in terms of insurance, we will see less dependence on the agency force,” she says.

More growth on the horizon

Looking ahead to the next two years or so, industry players expect further growth in the insurtech space. Khoo believes insurtech will continue to be a large part of the industry’s offerings, with strong support from the government and regulators.

Having a supportive regulatory direction is crucial as can be seen in the case of Singapore, she says. “The regulators have eased off in terms of regulations as financial services data can now be made available via the cloud. Though personal data is kept with the most stringent security capabilities, the use of the cloud enables flexibility and scalability for the business to grow.

“Insurtech players will continue to create and innovate to stay relevant in the digital space and cater for the growing number of affluent millennials and their demands. The use of technology, such as artificial intelligence, machine learning, robotic process automation, data analytics and data modelling, to innovate and drive the business will be even more intense.”

Innovation will flourish in the development of new insurance products as the old-fashioned style of risk assessment based on generic data goes obsolete, says Khoo. The use of social media and mobile devices can provide large amounts of personal data that can help insurers develop better products.

Khoo foresees consumer demands evolving over the next two years. She says usage and behaviour-based insurance products that are lifestyle-driven will be the new norm, which consumers can easily access via digital channels at an affordable price. “Users will demand for enhanced customer experiences, with greater interaction, access to insurers and speedier turnaround times,” she adds.

AXA’s Tan expects to see more non-insurance or tech players operating with high user data volume coming into the market, with the aim of integrating skills and technology with insurers to offer a holistic customer experience or even selling insurance themselves. “This will necessitate the creation of a new ecosystem and data disruption in the industry — something that we have to progressively keep up with to ensure that we have the skills and capabilities to up our game,” he says.

Chua points out that while this year has been rather exciting with new entrants in the insurtech space, the industry needs an external party to rock the landscape and drive change, just like how Grab competed with Uber to disrupt the ride-hailing market.

“Grab is already doing insurance and it can expand to have a mini-insurtech arm under the holding company to focus on insurance. We need someone to stir the market because until then, consumers will not embrace insurtech products,” she says.

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