This article first appeared in Digital Edge, The Edge Malaysia Weekly on October 23, 2023 - October 29, 2023
Rising insurance costs, tech adoption and product innovation continue to be among the challenges faced by insurers as they aim to meet the needs of the underinsured or uninsured communities.
“The historic challenge was the distribution model — the reliance on people to sell insurance given the adage, insurance is sold not bought. People and companies tended to focus on communities that could pay higher premiums as that meant higher profits and more commissions for distributors,” says Peter Miller, CEO of Fermion Group.
But today, customers can purchase goods and services digitally. The gaps remain though, with uninsured communities having limited access to digital devices and financial facilities.
“Those residing in rural and remote areas face difficulties in obtaining digital connectivity and financial services. However, taking away the geographical element, the take-up of insurance products in Malaysia is still relatively low, particularly among the lower-income and youth segments. This is due to income constraints, lack of suitable choices and low awareness of their importance and usage,” says Miller.
“This is largely due to the asymmetry of information and gaps in financial and digital literacy.”
Fermion aims to fill these gaps through mobile-focused initiatives, providing the uninsured with direct access to insurance solutions.
“Microinsurance and takaful are important as they provide ‘bite-sized’ premiums and coverage, allowing individuals to insure specific needs and pay manageable premiums,” says Miller.
That being said, microinsurance products need to deliver tangible value and should not imply a lower level of service and claims support.
“It is vital to provide excellent service, especially during the claims process, to ensure positive sentiment for insurance within the community. Insurtech companies, free from extensive overhead costs, have the flexibility to prioritise the unique needs of customers whom traditional insurers may not find economically viable to target,” adds Miller.
Insurtech companies utilise data analysis, Internet of Things, artificial intelligence (AI) and machine learning to collect and transform insurance data for rate determination, risk mitigation, and personalised policies. AI and machine learning drive automation, accurately assess risk, and analyse extensive data for personal coverage and pricing, he says.
“To effectively and automatically deploy the actionable insights generated and identified by machine learning models, insurers can utilise a combination of customer event management, product recommendation engines and automated sales systems to identify needs and reach out to leads at any time of the day.”
He adds that the tech tools also enable insurers to price their products more competitively, effectively process claims, evaluate risk, process contracts and underwrite policies. This leads to a more streamlined insurance operation, an increase in productivity, improvements in customer engagement and a reduced need for manpower.
In turn, a wider consumer base can be penetrated, which will drive additional revenue, making services more affordable.
“As advanced technologies usher in a new era of access, it will open up various opportunities for a seamless, cohesive, cost-effective and efficient experience within the insurance ecosystem, comprising consumers, sales channels, distribution systems, processing platforms and the people who serve the industry. This includes improved operational efficiencies, increased cost savings and better personalised experience,” says Miller.
The issue of low insurance uptake among underserved communities is a problem that needs all hands on deck to solve. The Financial Inclusion Framework, which has been proposed for the period of 2023 to 2026, identified challenges that hinder financial inclusion. Strategies will subsequently be developed to ensure that policies are translated into actionable steps.
“Efforts must be channelled to develop a protection landscape that is efficient, competitive and inclusive in meeting the needs of the unserved and underserved segments. The priority in the coming years will be to further promote the growth of a diverse microinsurance and microtakaful market that delivers products that are accessible, affordable, needs-based as well as easy to use,” says Miller.
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