The takaful industry needs to transform business to assimilate disruptive forces, appeal to millennials and move towards the next phase of "takaful 2.0", said speakers at the Takaful Rendezvous 2017 organised by Asia Insurance Review.
Presenting the performance of the Malaysian takaful industry, keynote speaker Mr Muhammad Fikri Mohamad Rawi, Chairman of the Malaysian Takaful Association and CEO of Sun Life Malaysia Takaful Berhad, noted its steady growth and the “enormous prospect” it offers. He said the key challenge is keeping the growth momentum while delivering profitability. Meanwhile, the government has been providing support in the forms of the upcoming Life Insurance and Family Takaful (LIFE) framework, under which the takaful industry is expected to develop more products and delivery channels, and Bank Negara Malaysia’s continued pursuit of the innovation agenda.
He also cited Malaysian government support for growth of digital and technology initiatives that could impact takaful. For example, gross contributions for online General takaful stood at MYR124.7 million (US$30 million) in 2016, of which 99% are from motor takaful. Another is BNM’s sandbox for FinTech initiatives, which will allow takaful to adopt digital technology to better serve the needs of customers through the offerings of innovative products including more affordable simple products.
Mr Muhammad Fikri said that traditional business models, including takaful, will need to disrupt themselves and transform businesses. One area is underwriting, where fraud intelligence systems can increase underwriting efficiency. To take advantage of detariffication and risk-based profiling, takaful operators should take advantage of digital disruption like telematics and ultimately offer best fitted products and pricing to customers.
Noting that millennials and centennials are set to make up 60% of world population by 2020, he said: “Takaful operators will need to rise to the challenge and harness digital disruption in order to get ahead and not be left behind….by adopting digitisation strategies, this will not only encourage productive innovation that will drive costs down but at the same time, improve the quality of service to customers."
With millennials shaping the future of insurance business, Mr Vincent Shi, Business Development Director of ReMark highlighted that the takaful industry needs to learn how to cater to their generation, whose lifestyles challenge the entire value proposition of traditional insurance. Currently, insurance penetration among them is not yet compensating for the shrinking base of Generation X and baby boomers.
Understanding millennial motivations is key, he said, sharing findings from a recent ReMark study. While Gen-X’s perspective on protection tends to be linked to positive life events such as property purchase, marriage or children, the industry needs to shift trigger points for millennials from a “desire for security” to a “fear of insecurity”, as they are motivated instead by fear of redundancy, debt or illness. While millennials seem to spend their time in their digital world, majority of them purchase insurance from an agent—thus the human touchpoint cannot be underestimated. Despite data-sharing concerns, they are willing to share data when it helps them, such as through a wellness programme.
Thus, the industry has an opportunity to change millennial behaviours if they target the right motivation, said Mr Shi. “Should insurers become ‘lifestyle’ experts, rather than the life experts they are?” he suggested. Next, insurers should be empowering in providing millennials with choices, but not overwhelming them with too many and turn them off. Third, once insurers can influence millennials’ lifestyle habits, they can carry out ‘inclusive targeting’, and possibly cover risks that traditionally could not be covered. This would allow them to expand their client segments.
Continuing the discussion on disruptive forces that will impact the insurance and takaful industry, Mr Martyn van Wensveen, Advisory Partner & Finance Transformation Leader, EY APAC, highlighted key trends as digital, cyber, robotics, regulatory, finance and accounting changes.
On robotics, which takes a manual, labour-intensive process and automates it, he said the savings can be tremendous, about 20-40%. The biggest potential savings and first implementation will likely come in the countries which are currently covering most shared services—Malaysia, Philippines and India. He said whether it is for robotics or any of the trends impacting the industry, a detailed “target operating model” is needed to facilitate an insurer/takaful operator's transition towards future-proof insurance business operations. Clearly defining six layers in the insurer/operator—service delivery model, people, functional process, supporting technology, data and reporting and governance controls, would be well worth the effort. It would help to align all departments and support the overall business strategy.
The Takaful Rendezvous 2017 is held in Kuala Lumpur and has drawn some 120 participants from 15 countries. It is sponsored by ReMark (lead sponsor), Avicennia Capital and EY. It ends today.