This article first appeared in The Edge Malaysia Weekly on October 30, 2017 - November 5, 2017

THE future of insurance distribution will undoubtedly be increasingly digital. The challenge for the moment is figuring out how to get there.

To get a hint of what could soon happen in Malaysia and the Asean region, take a look at the developed economies like the UK and Australia. Essentially, the business model for insurance is moving towards one that is increasingly digital, harnessing the best of analytics, cloud, social media and online channels to do business.

But it does not necessarily mean a big leap from consumers buying insurance products from human agents straight to purchasing online, whether it is via a website, mobile app or hybrid channel.

In Malaysia, the iMoney Group is among those working amid this transition. Its Group CEO and co-founder Lee Ching Wei says the move towards digital in the insurance space will likely go through a few iterations.

“We all know what the end game is going to look like. In 10 or 20 years’ time, I think consumers will mostly go to an aggregator or an online comparisons site to compare products. Ideally, the comparison website fulfills that well, so there’s no need for agents,” says Lee.

Having said that, he will not go as far as to say the human agency force will be completely irrelevant in the future.

“If you look at trends across the developed market, generally, agents are getting less and less. It is moving away from a middleman model. If there is a middleman, then he needs to provide more value in a holistic sense. It’s a tough one for them.”

Lee concedes it is likely to be harder to sell complex insurance products, for example investment-linked products with different features, exclusively online without any human intervention.

“It’s probably harder for complex products. You’ll need someone to sit down and explain how the product works. But with technology and the way consumers interact today, like chat bots and email, all these will become a lot friendlier in the future. The sales process will change.”

In this journey, insurance companies are facing what’s called “channel conflict”. They know that the bulk of the business is still generated by their agency force, whether it’s in-house or external agencies.

“Insurance companies know that the change will happen but how do they get there without offending the agents? The approach they are taking suggests that they are still cautious,” says Lee.

Indeed, many of the large insurers are taking a measured approach when it comes to promoting their online channels. On the one hand, there’s the regulator, Bank Negara Malaysia, pushing insurance companies to offer direct, non-commission channels to consumers.

At the same time, technology and changing consumer demands are driving the business increasingly online. Yet, the insurance agency force is still a big part of the equation and mostly resistant to the change, say industry insiders.

As PwC’s Insurance 2020 report points out, digital opens up new markets and new solutions for insurers. Now, this is beyond just digitising the existing industry but making the leap towards creating more innovative and personalised health, wealth and retirement solutions.

The insurance industry as a whole is still encumbered by legacy systems and practices.

“By the time the necessary changes are made to what are often large and complicated IT infrastructures, the market may have already moved on,” says PwC.

“In turn, over-reliance on agency channels to generate business means that many life and pension businesses could be missing out on the opportunities created by digital development to strengthen their presence in underserved segments of the market,” it adds.

This year, many major insurers in Malaysia have started rolling out more and more online campaigns, ranging from simple marketing initiatives to online-exclusive products.

If you are an insurance company and you know the future is moving towards digital, consumers are going to buy more things online. So how can you offer a more superior product and experience to consumers?

Today, no one really understands how to do it yet. In some ways, it’s a level playing field. Even if you are a small, but you invest time to create a great offering and value proposition for consumers of the future, when it becomes more relevant, you stand out.

McKinsey’s report, entitled “Time for insurance companies to face digital reality”, sets out the risks and opportunities for insurance companies in today’s fast-changing consumer landscape.

“Those companies that move swiftly and decisively are likely to be those that flourish. Those that do not will find it increasingly challenging to generate attractive returns,” McKinsey says in the report published in March.

According to the global consulting firm, the goal for insurers is simply to meet customer expectations. And what do new customers want?

“Customers want simplicity — one-click shopping, for example. They want 24-hour access and quick delivery; clear, relevant information about a product’s features, particularly in relation to pricing; and innovative, tailored services designed for the digital age,” it says.

But digital is not just about capturing more customers or retaining existing ones. There are revenue improvement opportunities, McKinsey says.

According to the consulting firm’s research, companies that initiated disruption fared better than those who responded on an ad hoc basis, with the former generating revenue and earnings growth that was one to two percentage points higher on average.

“The notion that insurance is a low-engagement, disintermediated category in which customer relationships can be delegated to agents and brokers is increasingly obsolete. Instead, digital technology and the data and analysis it makes available give insurers the chance to know their customers better,” says the report.

In Malaysia, online aggregators like iMoney are in the business of connecting consumers with insurance companies. iMoney last year added an insurance vertical on its comparison site, where it has been selling financial products and broadband packages.

For now, iMoney’s model for insurance is still a lead generation or referral model where they pass on interested consumers to the agency force of specific insurance companies. Lee says iMoney’s own insurance vertical will eventually do more than that.

The insurance vertical is still a small component of iMoney’s overall business, contributing less than 10% of group revenue.

But Lee believes this vertical is poised to grow especially if iMoney can roll out a more comprehensive end-to-end service around insurance acquisitions instead of the lead generation model it currently operates.

“In the future, ideally, consumers come to a comparison site like iMoney and we’ll take care of the entire process,” he says.

Rolling out end-to-end service will require investments in technology and infrastructure as well as training its own sales consultants to advise on a range of products from different insurers. And that’s just the sales part. There is the whole after-sales element and claims process that needs to be integrated as well.

“It has to be a well-thought-out process. Our major shareholder, [Australia-headquartered comparison site] iSelect Ltd has gone through this. So they do insurance acquisitions for providers and the claims part of it as well.”

Lee says iMoney is not rushing to develop that side of the business just yet.

“It’s something we don’t want to rush into because we want to get it right. We think consumers could use a better experience but it’s not yet at a stage where the model is highly broken.”

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