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Malaysia - E-Distribution of insurance products in Malaysia

Source: Asia Insurance Review | Apr 2016

By Ms Idahani Ismas, Partner of the firm Zaid Ibrahim & Co.
In line with Malaysia’s Economic Transformation Programme which, amongst others, aims to increase the country’s insurance penetration rate to 75% by 2020, Bank Negara Malaysia (BNM) issued the Life Insurance & Family Takaful Framework (Life Framework) on 23 November 2015. 
   Initiatives under the Life Framework have been categorised under three broad pillars. These are (i) the gradual removal of limits on operating costs, (ii) the diversification of distribution channels; and (iii) the strengthening of market practices. A phased approach will be adopted in the implementation of the initiatives under the three pillars to take into account the readiness of the industry and the public. 
High mobile and internet penetration rates
One of the biggest impacts the Life Framework will bring to the insurance industry in Malaysia is the shift to online insurance distribution or e-distribution.
   The Life Framework has seen BNM place an increasing focus on expanding the ways in which consumers can purchase insurance policies. One of the initiatives under pillar two is for insurers to offer commission-free pure protection products through at least one direct channel, either via walk-in, direct mail, telemarketing or online websites. 
   With over 140% mobile penetration and 66% internet penetration rates in Malaysia, life and takaful players will begin to shift their focus from traditional agency channels to online or telemarketing channels to tap into a larger client base. 
   Although some initial expenditure will be incurred to set up a proper and secure information technology infrastructure, it is expected that the growth and boost in earnings will defray such costs in the long run.
Online product aggregator
The shift to online distribution channels will need to be made carefully to take into account consumer readiness and literacy. Steps will need to be taken to ensure that consumers are able to understand the product features and therefore, choose the most appropriate insurance product for their needs. 
   These are roles which traditionally have been undertaken by insurance agents. On this note, the other initiative by BNM under pillar two is the introduction of an online product aggregator to enable consumers to compare the various insurance products offered in the market. This will assist consumers in making an informed assessment before purchasing insurance products. BNM will finalise the requirements relating to the product aggregator in 2016. 
Online access to insurance accounts
Separately, under pillar three, insurance companies are now tasked to provide policyholders with online access to their insurance accounts. These online accounts will allow policyholders to access any information relating to their policies and obtain the required forms for policy transactions. 
   It is also envisioned that the life and takaful players will be able to enhance their standard of service to consumers and improve their data management system with the implementation of online accounts. 
   The shift of focus to online channels will be exciting times for the industry. Online accessibility will be attractive to consumers for its convenience and ease of transaction. This is particularly so as consumers are now accustomed to online transactions due to the progression of online banking and e-commerce. Whilst insurers should be geared to tap into this opportunity to complement their existing distribution channels, they must also be prepared for the challenges to come and be mindful of the level of public literacy. 
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