New rules to boost insurance

Monday August 17, 2009

Lifting of restriction on tie-ups to improve penetration rate, insurers’ revenues

PETALING JAYA: The lifting of the restriction on foreign insurers’ tie-ups with local banks is expected to improve the penetration rate of insurance, apart from boosting insurers’ revenues.
Before the liberalisation of the financial sector in April, foreign-owned insurers were only allowed to tie up with local banks to market bancassurance products.

Foreign insurance companies are now able to partner as many local and foreign banks that they want to sell insurance products. Life Insurance Association of Malaysia (Liam) president Md Adnan Md Zain said the measure would increase the distribution channels for life insurance as consumers could have access to a wider range of products. This augur well for the Malaysian public as the percentage of people with life insurance protection was still around 41%, he said in an interview with StarBiz.

With the restriction removed, Liam sees the bancassurance channel playing a more important role in distributing insurance, as foreign-owned insurers would now be more active in bancassurance.

“The traditional agency channel will remain an important distribution channel for insurance companies. Experience so far in Malaysia shows the bancassurance channel has its strength in distributing short to medium-term single premium products.

“For regular premium products, the agency distribution channel is still the dominant channel. This is due to the complexity of regular premium products which the agency channel currently has a relative advantage in terms of experience and knowledge over their bancassurance counterpart,’’ Adnan said.

For the life insurance industry, the bancassurance market share of total new business premium increased from 2% in 1994 to 42% in 2008.

Last year, the share of bancassurance in single premium products was 65% while in regular premium products it was 7%.

Bancassurance contributed RM2.47bil in single premiums and RM185mil in regular premiums in 2008. The corresponding figures for 2007 were RM3.17bil and RM130mil.

According to Adnan, the recent financial turmoil had affected the single premium business to an extent and, hence, the performance of bancassurance would be affected in the short term as well. However, with the liberalisation and the subsequent economic recovery, bancassurance was expected to grow positively in the medium to long term, he added.

As of June 30, there were 15 life insurance companies which had tie-ups with banking institutions. In the same period, a total of 7,375 bank staff selling life insurance were registered with Liam.

Great Eastern Life Assurance (M) Bhd collaborated last month with OCBC Bank to launch its first regular premium bancassurance product.

Before the liberalisation, Great Eastern was only involved in marketing credit life-related products through banks.

Great Eastern director and CEO Koh Yaw Hui said the new bancassurance partnership with OCBC would enable the company to market a full range of life insurance products through the bank. With this partnership, Great Eastern is expected to generate total new business premiums of about RM100mil by the year-end.

The tie-up would see bancassurance contributing 8% to 9% of the company’s total portfolio by year’s end, Koh said.

Lonpac Insurance Bhd adviser Tee Choon Yeow said the company would consider more tie-ups for bancassurance if the opportunities arose. Currently, Lonpac’s main partners for this business are Public Bank Group, United Overseas Bank (M) Bhd and EON Bank.

“The liberalisation will afford the insurers to have more outlets to reach their potential clients. With more than one financial institution in partnership, they will be able to design and market bancassurance products as well as provide the insurer greater opportunities to expand its market,’’ Tee said.

The company’s bancassurance premiums grew from 5% in 2005 to 10% as at June 30.

http://biz.thestar.com.my/news/story.asp?file=/2009/8/17/business/4490024&sec=business