July 01, 2000

At the Bank Negara's 14th briefing for financial institutions on April 12, the then governor Tan Sri Ali Abul Hassan Sulaiman announced that eligible insurance companies can offer electronic transactions including the purchase and renewal of insurance policies and products over the Internet.

The push would have sent local insurers scurrying to stamp their footprint on this prime real estate although the central bank made it clear that online sales is subject to approval. Tan Sri Ali urged those establishing interactive Web sites to ensure that their systems are equipped with adequate security features to preserve the integrity of Internet transactions.

However, most insurers are still adopting a wait-and-see approach towards the 'Net although the industry is under great pressure to reinvent themselves into nimble e-commerce-oriented firms as they grapple with the steep learning curve to be cyber-savvy.

The central bank's directive made last year to merge the insurance entities from 58 to under 15 companies had also diverted insurers' attention to more important matters. As of May 2000, three mergers have been completed and three more are being finalised.

Preliminary data for 1999 showed that the combined premiums of both life and general in Malaysia grew by 7.1% to RM11.7 million (US$3 million). Industry observers said that the market for life and medical insurance policy is still largely untapped with 70% of the population uninsured compared to other developed countries in the region.

The general sentiment here is insurers are not doing enough to make the wholesale change demanded by the electronic age. "The world of the Internet brings great opportunity but if you do nothing, it's a great threat. E-business is much more than just selling over the Internet. It is about changing the way the whole back-office works and that process changes all your economics," said Ginni Rometty, general manager of IBM global insurance sector.

To Be or Not To Be

Since the late 90s, local insurers here have set up corporate Web sites promoting the range of services or products available. However, many are only beginning to discover that static Web pages do not go far in placing a company in a better position to draw new customers.

Most of the Web sites are B2C in nature and focus on getting people to submit personal details, which do not work simply because people refuse to divulge their personal information online while others try to add value by offering Web related services to their agents.

But there are some, such as Hong Leong Assurance, that are clicking into e-business. The insurer announced that it will invest in call centres and customer relationship management (CRM) in preparation for online insurance transaction.

"Many insurers have woken up to the fact that their customers do not find value in looking for policies online since most of the sites are non-interactive in nature. Hits have been pretty low. People prefer to have an agent to explain and quantify the value and benefits of a policy," said I-Systems Consulting Chief Executive Kevin Steer.

He pointed out that despite the increased level of interest among insurers on e-commerce, firms tend to be conservative and are treading carefully especially with privacy and security issues. "The rate of adoption depends strictly on their corporate culture."

Capital Insurance's CEO Mohd Yusof Idris believes that the 'Net is an essential transaction and communication tool for the future. "We are in an era where we can see the arrival of the 'Net. The writing is on the wall and we should accept, adopt and capitalise on it," he said, adding that the incentive provided by Bank Negara is a boon.

"Insurers need to change their approach as consumers are becoming more demanding and prepared to shop for the best product for their needs. Transparency is good for consumers and providers must be competitive in order to be efficient."

Leaders of the Pack

Last October, Financial Link launched Premium Link, an online payment and renewal service for motor insurance, with six participating insurers: Berjaya General Insurance, Capital Insurance, MBf Insurans, PanGlobal Insurance, RHB Insurance and Syarikat Takaful Malaysia.

General Manager Cheam Wooi Seong said the site recorded 38,000 visitors in the last seven months with 7% of visitors paying or renewing their policies via credit card transactions conducted through Malaysian Electronic Payment System (MEPS) under SET/MOSET technology.

Member companies admitted that they overestimated the initial potential of Premium Link. "The last mile home was still manual, people needed to have the physical evidence of their motor cover note and queue at the Road Transport Department (RTD) to renew their road tax and driving license," said a member who requested anonymity.

However things are expected to change as authorities had verbally agreed to issue digital driving license and road tax renewals. The plan to accept electronic cover notes, is part of the national e-government plan and currently under scrutiny by the Attorney General Chambers. By December this year, the legal and government infrastructure will be linked, making digital certificates a norm.

Yusof estimated that the pick up rate for 'Net transaction can soar up by 80% once the infrastructure linking all parties is connected. Capital Insurance is among the pioneers of Premium Link. "The response has been encouraging. We have enjoyed between 6000 and 7000 hits monthly."

He said that policy holders using the Premium Link facility were able to bring down the cost by 80%-90% compared to the conventional transaction that was costly and time consuming.

Though Yusof admitted that the last mile home is manual, he does not discount the benefit of being a pioneer in a nascent field. "We have the benefit of understanding our customer better and what the 'Net is all about by being in the business early."

"Currently, there is a lack of confidence among consumers to use the 'Net. The industry and the government must continue educating the public about the advantages of online transactions. Building confidence will take time. Even as I speak, the education process is taking place to create the next generation of professionals that are more receptive to technology than its predecessors," he said.

Cheam believes that Financial Link's online foray - albeit not a runaway success - can help them understand consumer behaviour in order to take advantage of the situation when the rest of the nation gets on the electronic highway.

"In my opinion, when the industry is open to foreign competition, new players that enter the market will use technology like the phone and the 'Net to attack the insurance market to get a share of the pie."

"But local insurers now have a two year headstart. Why would people want to go elsewhere for the same thing? The only pothole in this electronic pavement is if the competitor's rate is cheaper," he said.

He added that an online poll to determine habits and develop a customer wish-list had indicated that people want a choice, comparative notes and the best deal possible before making a purchase.

Plans are underway to introduce a similar model targeted at life and medical insurance policies. "We hope to have a working model up by July."

I-Systems' Steer also joined forces with several industry members to launch in May, a regional insurance portal offering group life and medical policies aimed at companies and human resource managers.

According to Steer, the B2B model offers comparative information on competing insurers. Unlike general insurance, which is mostly automated and easy to replicate online, putting life and medical variables is tougher, he said.

"HR managers will value this one-stop shop as it will give them plans from different insurers that are available for their employees. We created all the possible permutations as variables for life and medical policies are more complex compared to general insurance, which are mostly automated and easy to replicate online."

Agent of Service

Most insurers do not see the roles of the agents diminishing with the arrival of the 'Net. Ideally, agents should view the 'Net as complementary and not as a channel conflict. Professional agents will survive and grow with each new skill acquired.

Capital's Yusof believes that the 'Net enhances the agent's role. "The agent can concentrate on their actual work, which is to explain the nitty gritty to customers instead of doing the paperwork to generate a policy," he said.

However, insurers also realised that there is a growing breed of consumers who prefer to interact via the 'Net to obtain services instead going through an agent.

That said, even though insurers are likely to offer online sales directly or via partnerships with independent vendors, the regulatory framework will be a tricky issue that will surely fog the journey especially for multinational insurers.

"I cannot imagine Bank Negara allowing foreign players into the market as it would be [considered an] outflow of currency. As it is, multinationals here are not allowed to sell over the 'Net. It will happen but not before we have reached some level of maturity," said a local insurer who refused to be named.

The key for insurers is to focus on areas like customer loyalty, global competitiveness, increasing market share, and selling and offering services online.

While the personal touch offered by an agent will not lose its place in the business, the industry is unanimous that it cannot shrug the 'Net off that
easily.

Who's on the 'Net

Aetna Universal Insurance
www.aetna.com.my

AIA Malaysia
www.aia.com.my

Capital Insurance
www.capital-ins.com.my/

Guardian Insurance Malaysia
www.jaring.my/gre/

Hong Leong Assurance
www.hongleong.com.my

John Hancock Life Insurance (Malaysia) www.jhancock.com.my

Life Insurance Association of Malaysia
www.org.my

Malaysian Assurance Alliance
www.maa.com.my

Malaysia National Insurance
www.jaring.my/mcis/

Pacific Orient
www.pacific-orient.com

PanGlobal Insurance
www.pgi.com.my

Reka Maku Agency
www.geocities.com/rekamaju/

Financial Link
www.financial-link.com.my

Published in Intelligent Enterprise