Accelerating digital transformation in the insurance industry

According to Marcel Omar Papp, Head of Reinsurance Malaysia Conventional and Retakaful, Swiss Re, the economic downturn caused by the Covid-19 has people feeling worried about their overall finances in general and insurance premiums are only one of the many components.

“The insurance industry has recognised that claims have long been one of the most noticeable pain points in the insurance customer journey,” says Marcel.

With shifting consumer mindsets and behaviours during the pandemic, Marcel says many insurers are accelerating their digital transformation to provide the digitalised customer experience customers now expect.

Swiss Re’s consumer research reveals that 84 percent of Malaysians think their expectation of insurance claims are well met, the highest level among all surveyed Southeast Asian markets. This, Swiss Re believes offers them strong emotional value toward easing their stress.

“Insurance products are primarily distributed by agents in Malaysia. As a result, consumers are used to consulting their agents for financial planning and protection advice rather than actively searching or buying new policies.

This is validated by our survey which shows that especially in the early stages of the Covid-19 outbreak, consumers contacted by their insurer had a heightened awareness of their insurance policies and coverage, and are also more likely to purchase additional insurance,” Marcel tells BusinessToday.

Among the 69 percent of the surveyed Malaysian consumer who had been contacted by their insurers, almost one in two (49 percent) intended to buy additional insurance.

“This highlights the importance for insurers to actively and regularly engage their customers, demonstrating how insurers can be their financial planning and protection partners throughout different life stages, especially in times of uncertainty,” he adds.

Aid during unprecedented times

Compared to investing in properties, equities and other asset classes that are vulnerable to market volatility, Swiss Re believes life and health insurance serves as a simple, stable longer-term financial protection tool.

“Bringing uncertainty over lives and livelihoods, the Covid-19 pandemic has raised awareness of Malaysian’s mortality risks and their need for insurance for financial protection. Consumers can take this opportunity to better understand their protection needs and find the right solutions with the help from their insurers,” says Marcel.

While it’s too early to evaluate how the pandemic has influenced the insurance market, Marcel says within the first half of this year conventional life insurance premiums in Malaysia grew by 5.5 percent on a year-on-year basis, while family takaful business performed even better with a 10.2 percent year-on-year increase.

“The growth was mainly driven by robust sales of investment-linked products despite the volatility in the capital market. However, due to the Covid-19 movement restriction order, the national unemployment rate jumped to 5.1% in Q2 in 2020, the highest since the 1998 Asian Financial Crisis. This is likely to dampen growth in the insurance market, ” Marcel tells BusinessToday.

On the other hand, Marcel says the government stimulus which amounts to 17 percent of the GDP, plus other non-budget measures, like pension contributions through reductions and early withdrawals will alleviate the negative income effect to some extent.

He further highlights that physical lockdowns and social distancing have led to greater consumer demand for end-to-end online customer journey, through digital channels.

“According to our research, one in two (51%) Malaysians are open to buying insurance online, although agents and brokers still play a strong role as 50% of them prefer to speak with a person to help them understand complex products,” Marcel says, who believes that this will drive insurers to further strengthen their digital capabilities to meet consumer’s changing expectations in the future.

As for demographics, Marcel says there is no discernible difference on the type of insurance product young adults purchase compared with other age groups as their purchase decisions often hinge on life-stage planning.

However, when it comes to purchase channels, younger consumers show higher tendency to use digital channels to search and buy insurance.

According to Swiss Re’s soon-to-be-published Digital Platform Insurance Solutions consumer survey, 64 percent of Malaysian respondents use agents and brokers as their preferred purchase channel.

The ratio had dropped to 53 percent for younger consumer groups, indicating their preference on using digital channels.

Increase in demand and 2021 outlook

“We have seen growth in interest across medical insurance with 51% of Malaysian respondents showing interest, followed by critical illness lump sum policies (44%) and life insurance (37%), especially towards the anticipated post Covid-19 period,” Marcels says.

Swiss Re has also carried out a separate research on Asia’s mortality protection gap, which showed a spike in interest for bundled products in Malaysia, notably life insurance and medical insurance reimbursement bundles as well as critical illness lump sum bundles.

As for next year’s outlook, Marcel says the performance of Malaysia’s insurance market tends to follow the national GDP growth trajectory. “So if the economy is able to recover next year, this should have a positive effect on the insurance market as well.”

“The industry should also take advantage of the window of opportunity the pandemic has provided to educate consumers about the benefits of insurance and offer customised solutions that are simpler and more affordable,” Marcel tells BusinessToday.

He further urges the industry to digitise their distribution channels in tandem with hybrid models and assisted sales to ensure that consumer are provided with the right information and different consultation options.

“This also represents an excellent opportunity to introduce behavioural economics and human-centred design principles into the insurance customer journey,” he concludes.

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