Insurance via bite-sized premiums: tasty appetiser, but not a full meal

Singapore

MICROINSURANCE has taken off in Singapore and other developed markets in recent times.

An extension of microfinance, the idea is to break up insurance premium payments into small-ticket sizes, in order for low-income individuals to get coverage they would otherwise be unable to obtain.

NTUC Income is among the local players that have jumped into the microinsurance space. In 2020, it launched Snack, a digital app which allows users to gradually accumulate bite-sized coverage tagged to their daily activities, such as commuting via public transport, working out, or ordering a meal.

Each of these activities can "trigger" a microinsurance purchase, with premium payments of 30-70 Singapore cents. Over time, the micro-policies will be stacked to determine the user's total coverage. Users will soon also be able to make micro investments via the app.

This differs from traditional insurance policies that require some degree of commitment and access to liquidity.

High control, low commitment

According to Income's research, the younger segment of consumers today value having control and convenience, but may not like committing long-term to a particular product or service, the company's chief digital officer Peter Tay told The Business Times.

In July, Income also launched Tribe, a subscription-based solution which gives customers flexibility to upsize and downsize their coverage using a digital dashboard.

"Products like Snack and Tribe suit such a lifestyle, where customers don't have to over-worry about whether this decision is right or wrong, especially if they are just wanting to start to build up their insurance portfolio. Your first premium 'at risk' is only 30 cents," he said.

The company's move toward microinsurance also comes amid ongoing efforts to bridge protection gaps, he said.

A 2017 study by the Life Insurance Association (LIA) showed Singapore has a national mortality and critical illness protection gap of S$893 billion, collectively.

"The uncertainty of the future has always been a primary reason for hesitation, when it comes to insurance. (People are concerned that) if I make this commitment now, what happens if I lose my job, or run into cash flow issues or lifestyle changes in the future," Mr Tay said.

"Microinsurance offerings have opened up various permutations. The ability for customers to start and stop cannot be undermined," he said.

Prudential, another major player in the life insurance space, has microinsurance plans that meet customers' "specific and pressing needs", such as coverage for common cancers and dengue.

Prudential Singapore's head of product management (savings, protection and medical) Angeline Tan said microinsurance plans could attract those new to the workforce, as premiums are easy on the pocket. But people who already have comprehensive health coverage may still opt for microinsurance plans to enhance or fill gaps in their coverage.

Low barriers of entry

A spokesperson for Great Eastern noted that microinsurance may attract people with low incomes, those new to the workforce as well as freelancers.

Similar offerings are available to businesses, too. "Start-ups and SMEs can purchase micro-insurance to cover certain specific needs in the short-term but they would usually take on a regular corporate insurance solution to cover their broader business needs in the longer-term," she said.

In Malaysia, for instance, Great Eastern offers full-year coverage for small and medium-sized business from accidents resulting in death and permanent disablement, with premiums from as low as RM45 (S$14.50), via an e-wallet called Boost.

These micro packages can typically be bought off a digital app - such as Snack, or Prudential's Pulse - and often do away with the need to submit medical records and other documentation.

"As such, it lowers barriers of entry and is convenient and accessible for those who want to build insurance coverage a bit at a time, without feeling the pinch. It can be useful especially as a starting point for those who are first-time buyers or the underinsured, as the plan is low cost, requires a relatively shorter commitment, and can be thought of as additional coverage to supplement one's overall coverage," DBS's head of financial planning literacy Lorna Tan told BT.

Risks

That said, Income's Mr Tay acknowledged that the microinsurance proposition is not suitable for customers who "have an immediate desire to close protection gaps" of a certain quantum.

For a 31-year-old non-smoker female using Snack, a single 30-cent micro-policy offers about S$240 in accident coverage. A weekly premium cap of S$5 will accumulate about S$3,950 in weekly accident coverage. Estimated coverage differs with age and occupation, among other factors.

DBS's Ms Tan also cautioned that the small cover and limited duration may not be sufficient for those who have dependents or are vulnerable to higher risks, such as those with pre-existing medical conditions.

When considering microinsurance plans, one should also take note of when coverage expires, and the eligibility to renew coverage due to age and medical conditions.

Things to consider

As a guide, the LIA recommends basic term life coverage of approximately nine to 10 times one's annual earnings. For critical illness cover, it recommends about five times of annual earnings.

"While you do not need to have insurance for everything, consider the things that could set back your financial situation or derail your financial goals," Ms Tan said.

She urged customers to list the possible risks or events that concern them, the financial loss they could suffer if such events come to pass, and how they could manage such a loss.

OCBC's head of bancassurance Samuel Wang suggested the possibility of mixing and matching traditional and microinsurance plans.

"For someone who is very clear on the specific protection gap they wish to cover, modular insurance offers an affordable solution," he said.

For instance, a consumer who has already covered his basic needs with hospitalisation and critical illness protection insurance, but who will be exposed to additional risks during a skiing trip may choose to purchase a modular insurance to cover this activity over a specific period of time.

There is no one-size-fits-all approach to insurance, said Mr Wang.

UOB's head of group personal financial services Jacquelyn Tan also suggested that microinsurance, while a simple and affordable way to get started, should be complemented with a more holistic coverage.

"It is also important to note that many microinsurance products are self-served and, therefore, consumers who require further advice on more holistic insurance planning may want to speak to a professional adviser before making any financial decisions," she said.

• The Money Playbook is a personal finance column that discusses how to take charge of your financial well-being.