At the InsureTech Connect Asia Roadshow in Kuala Lumpur on 24 August, I had the great opportunity to hear and network with the insurance community in Malaysia. It was great to hear perspectives on Malaysia’s industry trends, insurtechs, and innovation in the country. The main topic of the event was on “Digital insurance in Malaysia”.
Regulation and Digitalisation Efforts
To share a regulator’s perspective, Lau Chin Ching of Bank Negara Malaysia (Central Bank of Malaysia) shared about the Financial Sector Blueprint (FSB), the bank’s development priorities for the financial sector over the next five years, from 2022 to 2026. The main goal is to have greater end-to-end efficiency of the industry, through digitalisation and household resilience in Malaysia, along with good governance and user experience. Use cases included motor claims, medical reforms, and digital insurance, with the collaborative model among the regulator, incumbents, and insurtechs in the country. An overall aim to have greater inclusion and flexibility in how financial services are offered to the Malaysia’s population.
Wilson Beh of the Fintech Association of Malaysia (FOAM) provided his views on the digitalisation topic by highlighting 5 key pillars for digital insurance. The pillars are talent development, market entry expansion, industry investment, technology adoption, and regulatory awareness.
Vincent Low of Gobi Partners, a pan-Asian venture capital firm, shared that funds have shrunk in 2022 after a period of steady growth. IPOs of insurtechs has also dipped by about 70%. The approach going forward is to evaluate the portfolio and identify where the insurtech of interest will fit into Gobi’s strategy. The goal is to foster an ecosystem of partnerships, which will allow for greater data sharing among partners, and this give the resources for deeper analytics insights.
Business Models to Align with Country’s Needs
During the event, George Kesselman of ZA Tech shared 3 use cases which provide lessons on finding the right product-market fit. The first was GrabInsure’s embedded shipping insurance, which would work only if the market can provide the usage volume and have the right infrastructure and end-user experience. The second case was on mutual insurance, which worked well in China but not in Indonesia due to lack of insurance knowledge and digital-only purchase experience may lack the perceived value. There must be iterations for the product to work in a target market. The third use case was on digital bancassurance for Hong Kong, where users purchased insurance through an integration with the bank app. However, such a model would not work in Grab, whereby it is utilized for its ride and delivery services, not pure insurance product purchase.
Innovation for Takaful Insurance
In my blog, Understanding Takaful Insurance, I described what is Takaful insurance and highlighted use cases from Malaysia. On the panel discussion of the future of insurance and Takaful in Malaysia, Mohd Radzuan of the Malaysian Takaful Association (MTA) highlighted that Malaysia is positioning to be a leading Takaful hub and the Takaful industry is driven by the FSB guideline for the increased adoption of technology in the industry. Takaful is relatively young as compared to the insurance industry.
From the Malaysia Takaful Association, there are 3 plans to aspire to and guide the digital transformation. They are data sharing, marketplace aggregation, and financial resiliency and inclusion. For innovation to flourish, more engagement with the broader industry will be needed going forward, such as organizing hackathons. At the event, FOAM and MTA signed a Memorandum of Understanding for innovation collaboration, with guidance from the FSB.
B2B2C as the Preferred Business Model
As observed in other countries too, the early proposition of insurtechs is targeted at the retail customer or B2C. However, in recent times, insurtechs are pivoting towards the B2B2C model as there are greater considerations for sustainability. Unlike B2C which require volume, higher customer acquisition costs and competition, B2B2C is focused on partnerships with businesses that target the same end-users. Overtime, there is relationship stability and insurtechs can go directly to the source which enable better adoption of their digital solutions and allows for faster innovation iteration cycles. This also creates a collaborative avenue between the partners, such as an insurtech working with an incumbent insurer. An example of implementation is an API-based insurance-as-a-service platform, with companies such as ZA Tech and Tune Protect operating in this space.
B2B2C also allows for the provision of related services between partners. For example, GrabInsure offers embedded shipping insurance that compensates for items that are loss or damage during delivery. The function is embedded into the Grab app and in partnership with AIA and ZA Tech.
Insurtechs Finding their Identity and Support from Regulator
Eddy Wong of VSure, a digital and on-demand insurance provider, mentioned that the incumbents in Malaysia are more open to innovation now, as compared to when they first started. From B2C to the preferred B2B2C model today, insurtechs need to iterate for success and know what the market needs. It is because of a customer-centric approach that incumbents are willing to work with the insurtechs.
This brings about the need for regulator’s support to ensure innovation success. VSure is now approved by Malaysia’s central bank under their innovation sandbox, Malaysia Fintech Regulatory Sandbox Framework, for testing a fully digital on-demand insurance model. The regulator is observed to make the approval process easier after they had worked with the first insurtech’s new business model and after witnessing its viability. Rohit Nambiar of Tune Protect, a digital insurer and API-platform, shared how the approval to host on the cloud took months when they first started but now takes weeks for a new company entering this space. This was also highlighted by Winnie Chua of PolicyStreet, an online insurance marketplace in Malaysia, who mentioned that the right innovation can occurred when insurtechs are iterating their proposition to find their niche. But in one example, the copying of a business also requires a new application for regulator’s approval.
Creating Products for the Underinsured in Malaysia
In Malaysia, there are 2 income classification – the “B40” group and “M40” group. B40 is offered to Malaysians in the bottom 40% household income range and is a government initiative via the Ministry of Health which funds the treatment of non-communicable diseases (NCDs) for the low-income group. M40 refers to Malaysians who earn RM 4,850 to RM 10,959 (USD 1,170-2,635) per month and are the group that benefits least from government health financing programs. While those in the B40 group receive government support such as PEKA B40, which funds surgeries and medical equipment, or MySalam, which provides free takaful income assistance, Malaysians in the M40 group are excluded. These households must then rely heavily on their own income to pay for health care.
Malaysia has the challenge of having an underinsured population, which will benefit from affordable insurance alternatives. Winnie recommended that there can be cross product between insurtechs’ products and the established incumbent’s product. An example is an addition of a rider that is cheaper but can be pegged to an incumbent’s policy. There is a contrast between the rural areas and the cities in Malaysia, with the former having very basic infrastructure and low insurance awareness among the B40 segment. Therefore, innovative solutions can tackle this issue.
Potential of Malaysia for Insurtechs and Digital Insurance
Overall, Malaysia has the potential for insurtech innovation and the digital transformation of the incumbents. As described during the event, Malaysia is the middle child with a right mix of potential and appropriate infrastructure for growth, with Singapore being the mature older child as an established financial hub, and Vietnam and Indonesia being the youngest child which are at the early stages of innovative change. Insurtechs will help solve community issues, which in turns lead to greater collaboration with incumbents.
To learn more, Celent tracks this market and has research addressing it (list of recent reports here). If you would like to find out more, please feel free to get in touch with me.
Below are related reports contributed by Celent on this topic:
Understanding Takaful Insurance
API Factory, Marketplace, or Embedded Experience for Insurance-as-a-Service