This article first appeared in Digital Edge, The Edge Malaysia Weekly on August 9, 2021 - August 15, 2021

Malaysia’s insurtech industry has been around for close to a decade but, compared with regional peers, the innovation in this space is lagging. The government has made an effort to push innovative bounds within fintech and, subsequently, the insurtech space — introducing, for example, Bank Negara Malaysia’s regulatory sandbox. The biggest challenge, however, is navigating the local agent-centric insurance landscape.

Prassadh Shanmugam, director and CEO of global technology provider KG Information Systems Private Ltd (KGISL), tells Digital Edge that this environment should not be a roadblock to the growth of insurtech in Malaysia, but it has to be acknowledged that the industry thrived on the agency model for a long time.

With that in mind, it is pivotal for insurance companies to find a balance to ensure that insurtech advancements do not put the agency force out of a job. Prassadh says a space has to be found for them to coexist in the digital world, and industry players such as KGISL need to analyse and define the roles and responsibilities of the new-age digital agent. 

“The future era of insurtech will see the deployment of agents for high-value activities. They will work closely with automated digital solutions to meet customers’ changing needs. We will play our part in helping to develop Malaysian talent to equip them with the necessary skills for the future of work,” he says.

KGISL recently acquired Aetins Sdn Bhd via its local outfit, KG Information Systems Sdn Bhd, which the company considers a major move to transform the local digital insurance landscape. Prassadh says this acquisition will be able to extend the company’s offerings and expertise to life insurance coverage as well as the takaful segment.

With the digital surge amid the pandemic, it was discovered that internet-savvy Malaysians preferred an integrated financial provider that met all their core needs in one place. This is in line with an Insurance Services Malaysia Bhd report, which found that insurance sales via online distribution channels have grown 32.6% year on year.

Rapid global digitalisation and the adoption of artificial intelligence (AI) has accelerated the insurance industry growth in Malaysia as well, says Prassadh, as a key pillar in insurtech is to deliver a better experience for customers and increase the efficiency of insurance processes. According to Research and Markets, the insurtech market will grow US$21.72 billion between 2020 and 2024.

With these points in mind, Prassadh says KGISL plans to bring affordable cutting-edge technologies to the Malaysian digital landscape. Its Aetins Delivery Center in Malaysia will become KGISL’s delivery centre for the South Asian market.

“KGISL aims to accelerate growth and value creation in the banking, financial services and insurance sector, enabling digital transformation for businesses across different industries and sectors in Malaysia. We seek to invest in expanding our space and people, which will create high-value job opportunities for Malaysians,” he says.

“With respect to cutting-edge technologies, we plan to work with local universities to cultivate IT talent, especially in the data and analytics space. This is in line with the government’s MyDIGITAL initiative to transform Malaysia into a high-income and digitally driven nation.

“By committing fresh resources to developing local tech talent, we can help in stimulating the digital economy while also positioning Malaysia as an attractive regional insurtech hub.”

The insurance industry is complex. Prassadh points out that any transaction done by players within the industry requires a lot of cloud computing power. The rest of the world has been moving at a fast pace in embracing the cloud and thereby converting their capital expenditure into operational expenditure through pay-per-use models in the market.

However, the rate of cloud adoption in Malaysia is not the best at this point, he adds. Cloud adoption is still conservative compared with regional markets, but there is plenty of scope for improvement, especially through MyDIGITAL, which is implementing a cloud-first strategy.

As cloud adoption picks up speed, Prassadh says, the insurance sector will benefit through improved operational speed and agility.

“When the cost of infrastructure comes down, start-ups will be able to take up initiatives by Bank Negara, such as the digital aggregator portals and sandboxing, where innovation will happen. Innovation leads to faster adaptation of technology and positive disruption in our business operations, which will ultimately help improve and elevate customer experience tremendously.”

Big data analytics, machine learning (ML) and AI are also crucial. Prassadh says, currently, most data present in insurance companies are aggregated through legacy or near-legacy technologies.

Few insurers are leveraging deep tech, he says, but if they did, the local insurance sector would be able to unlock immense value from cross-selling, upselling, making customers aware of potential pitfalls, and even providing personalised suggestions on products that will suit their lifestyle.

“The good thing is that almost all insurance company leaders and CEOs realise the urgency for digital transformation,” Prassadh says.

“Emerging technologies are the driving force of the local insurtech sector. For Malaysia to thrive as a regional leader in the digital economy, the importance of data analytics should not be underestimated.”

There has been an insurtech boom locally, especially among the younger population, owing to the step-up in digitalisation in recent years. In a report by Swiss Re Institute on online insurance in Malaysia and Indonesia, 59% of Malaysians said they would purchase insurance online. Prassadh says this trend can be leveraged by insurers to improve their digital presence through data analytics and AI to develop more innovative products and services.

“Digital e-hailing platforms and telehealth providers in Malaysia have already partnered with digital insurers, contributing to the rise of the insurtech market, by providing per-trip liability microinsurance to protect customers,” he says.

“The AI-enabled diagnostic capability provided through insurtech is also one of the key innovations in digital insurance that has been of great assistance for the health sector, especially for medical insurance.”

Insurtech plays a key role in the rise of microinsurance as well. Prassadh says technologies such as data analytics and AI are critical to delivering risk protection to the B40 (low-income) communities through digital platforms that are cost-saving. 

According to Bank Negara, only 4% of B40 households are insured. Prassadh says this is worrying, as it not only makes this community vulnerable to critical illnesses, accidents and disability, but the lower-income group is the least able to cope if affected.

“Shorter-term and on-demand policies offered by microinsurance will increase accessibility and lead to higher insurance penetration. This could attract younger people, informal workers as well as gig economy participants, who may find it challenging to pay for an annual policy, owing to income instability and the nature of their work,” he says.

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