Malaysia is taking a smart path …
The overall message is that Malaysia is taking a smart path towards Detariffication and taking into consideration the experience learned from other countries such as Singapore which had adopted this practice. Below are the points from one of the key slides:
- progressive de-tariffing
- risk based capital in place
- danger of ‘wild pricing’ reduced
- detariff not de-regulated
There are two important take aways from this slide.
Number 1: Insurance company are financially stronger in Malaysia
Malaysia has already implemented Risk Based Capital (RBC) framework, so that companies are limited in reducing prices significantly without providing fundamental numbers to justify. This was one of the weaknesses in other economies like India, where companies were forced into insolvency.
Number 2: No full deregulation for motor and fire insurance
The insurance for motor and fire will be still regulated, so that we expect that insurance companies will not be able to freely price insurance products on their own. Most likely and we have seen it in other countries, insurance companies are given ranges or sometimes called price bands in which insurance companies can move the price for vehicle insurance.
What does it mean for agents?
During the convention, further insight was given to what people believe will happen to Malaysian insurance agents. A key slide is the following. With some irony, the slide is showing a downward path for agents, which might hint that everyone expects that the number of agents will reduce from currently 39,220 (Source: PIAM Annual Report 2015)
4 key phases were illustrated to which we share our own thoughts with you
Without a doubt competition is going to increase for agents. We have seen in other developed markets like the US and Europe that agents will face additional competition from direct insurer and price comparison platforms. Geico for example is one of the leading direct insurer in the US backed up by famous economic guru Warren Buffett.
Evolution in customer preferences / distribution
This is actually independent of the Detariffication in Malaysia. The more educated Malaysians become, the more people will buy insurance without an insurance agent. The more time passes, the more younger people will graduate from colleague and are more likely to buy insurance online. This is especially risky for agents who have most of their business in motor insurance. Motor insurance agents and franchise dealers who sell insurance are especially at risk of losing most of their business.
Agents more selective on affiliation
Definition: Affiliation – the state or process of affiliating or being affiliated.
With more Malaysians becoming comfortable to buy insurance on their own, fewer people will look for agents to buy insurance. For agents to survive in this kind of environment, agents need to look for the help of other parties. Here are some examples of affiliations that have helped insurance agents keep their business after detariffication in other countries:
- Insurance companies provide better support for agents who exclusively sign-up with them. Agents will be affiliated with one insurer only and become quasi tied agents
- Or the opposite: Insurance agents will distance themselves from insurance companies to be seen as independent and team up with financial advisor firm to offer the full range of insurance products
Agents become advisors
This will be the end game and for most of today’s insurance agents it will mean the end of their insurance career. Today, general insurance agents are only allowed to have two principals. Some larger agency are able to expand to more principals, but they are still limited compared to what financial advisors can do. A long time ago, Bank Negara (BNM) introduced Financial Advisors to Malaysia that are able to provide extensive financial advice to Malaysian. Financial Advisors are not limited by principals and can offer the most suitable product for their clients, independent of any principals. Read more on BNM’s “Introductions of Financial Advisers”
Bottom line, we all agree that business will become much tougher for insurance agents in Malaysia. But how bad will it affect each individual agent is still unknown. Only time will tell, therefore agents need to keep a close watch on what the regulator BNM and the insurance companies are doing.