Going digital inevitable for local insurers in long run

Singapore

SINGAPORE insurers may be dragging their feet when it comes to moving their wares online, but industry observers say they will inevitably be forced to increase their use of the Internet as a channel to distribute their products.

This comes in the wake of an expected shakeup in the way consumers shop for life insurance policies over time.

The Monetary Authority of Singapore (MAS) on Tuesday said it would roll out the web aggregator and direct purchase insurance next week.

Observers believe this would pave the way for a gradual shift in the business of insurance - from one that is historically reliant on a tied agency force, independent financial advisers and bancassurance, to one that includes more of a digital play.

Those who will benefit the most from sales through the online platform will be new entrants and small insurance companies, said Mark Tay, executive director of Wen Consulting, an integrated solutions provider for financial services firms.

This is because only incumbents are able to grow their agency force here, he said, adding that the number of banks that offer bancassurance channels are limited. So implementation of a full digital channel "is a good strategy" for smaller and new players in the market.

"It is difficult to grow sales through the two established channels for smaller companies. But if they go fully digital and do away with the intermediaries, there is less commission in the product structure. So premiums should theoretically be lower, which would spur sales."

For it to work, though, Mr Tay said new entrants and small insurers must have a very strong social media strategy to connect clients to their products.

The shift would not come easy as a strong online channel is often viewed as a threat to insurers, particularly those with a large agency force.

But Nishit Majmudar, chief executive of Aviva Singapore, does not believe there will be a huge conflict between the online channel and a tied agency. "The perception is that all the intermediaries will be unhappy with digital (channel) but I'm not sure at the moment that market is very big. Obviously, if it changes, then yes, the conflict becomes bigger."

Several life insurers, however, reiterated in interviews with The Business Times that Singapore consumers generally prefer in-person communication with tied agents or financial advisers (FAs).

Ian Martin, chief executive of HSBC Insurance, said face-to-face advice will always be required because there is a level of expertise that adds real value in a conversation. But he believes the evolution of the market will go towards bancassurance and online.

"The older customers say their preference is still the agency, while the younger customers say their preference is for bancassurance and for digital. So there is a generational change going on and it won't happen overnight, of course," Mr Martin added.

Said Khoo Kah Siang, president of the Life Insurance Association Singapore (LIA): "I believe if you look at the market, there is room for different propositions to exist . . . All these initiatives just mean that there are more choices; it doesn't mean one choice is better than the other. Over time, hopefully, this will allow consumers to be able to purchase the right products to ensure they are properly protected."

In the general insurance sector, using technology to grow business is unstoppable in the near future said AK Cher, president of the General Insurance Association of Singapore (GIA). But he, too, has reservations about the trend catching on in the short term.

"Realistically, I think our market will continue to be intermediary driven - agency, brokers, FAs and all that, in my view, will stay a long time," said Mr Cher, who pointed to the limited market size as the primary factor.

Even as insurers show resistance for now, the use of an online channel would be driven primarily by a new generation of tech-savvy consumers, said Philippe Chassat, head of financial services practice at Roland Berger Strategy Consultants.

The firm's research shows that in 2012, 30 per cent of the mass-affluent consumers in Singapore were willing to subscribe to insurance online.

These include the less traditional insurance products such as a health insurance plan, said Mr Chassat, who added that he expects the "aversion to purchasing insurance online to quickly vanish" as the younger population becomes more financially literate and more connected to the online world.

According to MAS, there are 22 life insurers licensed to operate here, of which five are composite insurers (life and general). It added that 57 general insurers are operating in Singapore.

A check by BT found that only about eight are selling at least one product directly online, most of which are general insurance products such as travel and motor insurance.

Of the eight, Direct Asia Insurance is the only one that sells a basic term insurance policy online. It has done so from 2013.

For now, insurers are more into using the Internet as an extra communication tool rather than employing it to facilitate actual online sales, said the observers.

But if they do not want to expose themselves to the risk of a big disruption from a less entrenched competitor - as happened in the United Kingdom a long time ago for commoditised products such as motor insurance - they will inevitably have to go through the digital revolution, Roland Berger's Mr Chassat said.

Giam Ei-Leen, global financial services industry partner of Deloitte South-east Asia, said insurers will probably need more time to set up a strong digital channel as they would have to deal with cybersecurity risks and technology risks, and would have to ensure that they have a safe and secure platform for consumers.