M'sia online insurance firms compete for strong profit margins

Kuala Lumpur (The Star/ANN) - In a bid to boost bottomlines, more Malaysian insurers are competing for a larger slice of the online insurance business in view of its strong profit margins.

One insurer intending to lead the pack is Tune Ins Holdings Bhd. Although there are some hurdles in this new channel of distribution, the company, like other insurers, is bullish on the scope of this channel going forward.

Tune Ins, which had a database of 7.6 million online policyholders as at Dec 31, 2012, sold six million insurance policies online last year, putting the company at the forefront of this growing business segment.

Analysts are upbeat on the business, with many feeling the rapid growth of digital technology coupled with low expenses in terms of infrastructure and low claims rates would further spur its growth. In this regard, many industry observers and analysts foresee competition flaring up over the next few years. Expressing his optimism, Tune Ins chief executive officer Peter Miller told StarBiz that besides digital technology, the removal of the tariff structure in the motor and fire insurance segment would further bolster the growth of online insurance.

"The abolishment of the tariff structure, expected to take effect in 2016, will benefit online insurance as it will be priced based on risk factors. A person with a higher risk will likely pay more and vice-versa.

"This will enhance the growth of online insurance in the country, which has been lagging behind other countries in the region like Singapore, Hong Kong, South Korea and Taiwan," he said in an interview.

An industry observer felt that the long-standing tariffs for products such as motor insurance and fire insurance had been holding Malaysia back. "The first products that often move online are those which everybody has to have or should have, for example, car insurance or fire insurance. When it is time for renewal in a non-tariffed market, consumers would go online and compare the prices of different companies.

"In Malaysia, the cost has traditionally been the same irrespective of which channel you go to, and thus, consumers would just renew as opposed to checking online. Bank Negara has begun relaxing the tariffs but there is still a long way to go until true free-market principles apply.

Essentially, motor tariff insurance companies, on average, lose money, while the fire tariff insurance companies make decent profits.

"Another way of looking at this is that with zero tariffs, most consumers can purchase less expensive fire insurance whereas for motor insurance, perceived good risks would get cheaper insurance while perceived bad risks may have to pay more," the observer explained.

About 70 per cent to 80 per cent of Tune Ins' bottomline is derived from online insurance, notably, travel insurance, according to JF Apex Research. Miller said to have a stronger foothold in online insurance, the company would, among others, differentiate its product range from its competitors.

Towards this end, it will invest in new information technology systems to test and launch online products that will cater to consumer needs.

AIG Malaysia Insurance Bhd also recently announced that it wanted to make its presence felt and outperform the insurance market by focusing on the online distribution channel. Its CEO Matt Harris was reported as saying that the trend would involve a shift from the intermediate channels (agency base) to direct distribution in time.

He said based on trends in developed markets, "online insurance sales go from the base line of zero to as high as 35 per cent to 40 per cent".

Meanwhile, Ernst & Young IT Risk Advisory Leader for Malaysia Susanna Lim said she expected to see the trend of online insurance moving away from just a self-service application portal to active consumer devices to partnerships.

As a result, she said insurance companies needed, among others, to expand the existing technology risk management framework to include online insurance business.

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