Encik Adnan Zaylani Mohamad Zahid: Distribution in a digital
economy - Customer @ Core
Keynote address by Mr Adnan Zaylani Mohamad Zahid, Assistant Governor of the Central Bank of
Malaysia (Bank Negara Malaysia), at the General Insurance Agents Convention
&quot;Distribution in a Digital Economy - Customer @ Core&quot;, Bangsar South City, 18
October 2018.
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Let me first begin by thanking Persatuan Insurans Am Malaysia (PIAM) for hosting this convention
and inviting me to deliver the keynote address. This is my first ever engagement with the general
insurance agency force but also the insurance industry as a whole and I am very pleased to be
here at this fittingly themed convention, "Distribution in a Digital Economy - Customer @ Core".
There is no question that we are now in an era of the Digital Economy. According to the World
Bank there has been an accelerated growth of internet access of more than 170% in global
accessibility in the past ten years. In 2006, only 17% of the world's population was estimated to
have an Internet connection - but now that number is 46% in 2016. During the same period,
Malaysians with Internet access has increased from 52% to 79%, which is a very high number
amongst many countries.
With such widespread accessibility, a market presence on the Internet has never been more
important. E-commerce activity has boomed in recent years, especially in the Asian region
because according to the Asian Development Bank, Asia's e-commerce transactions now
makes up one quarter of global business in consumer markets. Not surprisingly, the largest
proportion and number of these transactions originate from the People's Republic of China;
where the size of the retail e-commerce market has seen a fourfold increase from USD200
billion to USD800 billion in a period of three years between 2013 to 2017 . Here in Malaysia, the
trend in e-commerce transactions has been encouraging as well, with an increase of more than
69%, from USD1,856 million in 2016 to over USD3 billion in 2018.
All this affirms the shift in the mode of our economy: The future is not so much in brick and
mortar - but in bits and bytes. In Malaysia, an estimated 62% of businesses are connected to the
Internet. More will migrate to the virtual marketplace, and there is little doubt that digital
entrepreneurship will be a key component of economic growth and job creation.
Of particular importance in this shift is the role of intermediaries: In a market which is
increasingly defined by customisation and speed of service, the role of matching customers to
providers has become absolutely critical; the reliance on both parties being on the know-how and
expertise of the go-between. And this certainly applies to your role as the main intermediators of
insurance.
Another important feature to note is the decentralisation of knowledge: With a touch of their
screen, consumers are now able to access an almost infinite repository of information about the
products that they want; including comparisons and peer reviews. The days of the insurer or
agent knowing best have passed, and it is important to recognise how this tilts the bargaining
power in favour of the consumer. From this, there are fundamental questions that need to be
asked of the agency force: Are the current incentives of the industry aligned with the best
interests of consumers? Should insurance companies still be thought of as the main principals
that agents serve, or should consumers be seen as an equal principal in that relationship? How
can the remuneration and more generally, culture, change from one focused on volume of sales
to one where agents are recognised for more customer-centric, and a consultative role? These
are some of the questions that I hope this convention will touch on, and perhaps for me to share
some thoughts.
There are many concerns over the potential upheaval of the status quo arising from the
digitalisation of services. But I can share with you that we firmly believe that the agency force will
continue to have a role to play in the general insurance sector even as it evolves into the Digital
Economy. The reason for this is simple: insurance products can be complex and coupled with
the sophisticated needs of clients such as individuals and SMEs, the human and personal touch
of an agent can come in handy. It is these functions that will remain relevant in the Digital
Economy; those that require intuition, discretion and sometimes, empathy; traits that are not
easily programmable.
Having said that, the Digital Economy will revamp the distribution landscape for general
insurance and these changes are currently in progress as we speak. General insurance agents
must accept and embrace the shifting business dynamics towards digitalisation. The agency
force must not only reinvent themselves to reflect the latest digital trends, but also upgrade their
capabilities in line with the latest technological developments. Thus, I would like to suggest three
strategies that general insurance agents can take in not just surviving, but also thriving in the
Malaysian Digital Economy, namely:
First, improving the customer experience by enhancing your service capability.
Compared to other financial products, such as banking products and investment products,
insurance products are inherently more complex to understand. It is perhaps not a surprise that
customer satisfaction of the local insurance industry is lower than other financial services
industries. According to BrandIndex , in its study of the health of brand names in Malaysia, the top
5 insurance brands in Malaysia scored relatively lower than that of their top 5 counterparts in
other financial service sectors (especially banking). This is a challenge to the industry to raise
this till we meet again in two years.
Given that the agency force are the insurers' first contact point with customers, agents wield
significant influence over how customers perceive and experience insurance. It is thus critical for
agents to provide the highest levels of service via continued and consistent displays of
attentiveness and value adding, to build trust with their clients.
There are many possibilities to improve the current insurance value chain. One area that Bank
Negara Malaysia strongly supports is the use of electronic payments. We have been undertaking
a major initiative since 2013 to promote e-payments and reduce use of cash and cheques now.
In increasing e-payments among financial institutions, government agencies, retail transactions,
we have made some inroads. The insurance industry's uptake however, still remains low.
Perhaps agents can do more to help us in this. Promoting and using e-payments could remove
the many pain points associated with the manual handling of cash and cheques that are
experienced by the consumer, agent and even the insurer. Some of the data still indicate a high
number of cheques. From January to July 2018, about 35,000 cheques were issued by the
general insurance companies to their customers for the payment of claims and refunds.
Likewise for collection purposes, about 1.1 million premium payment transactions were still being
made using cash and cheque in the first 7 months of 2018. This figure could be a lot higher if we
take into account the mode of payment used by customers to pay agents, which based on
anecdotal evidence, are primarily in cash and cheque. On this front, agents should work
hand-inhand with insurance companies to encourage and incentivise their customers to adopt
epayments. Besides enhancing the customer experience, higher adoption of e-payments could
also boost the agents' efficiency and productivity. In this regard, time and effort saved from less
handling of cash and cheques can be directed to more productive tasks such as to increase
sales, even by usage of WhatsApp.
Second, increasing your digital accessibility to prospective clients.
For a long as I am aware, the agency force has always dominated the insurance distribution
channel. In 2017, there was a total of over 56,000 agents constituting a market share of
approximately 63%. Irrespective of whether in general or life insurance, the agency force has
traditionally been the physical point of contact and engagements with clients. But, with the
Internet and improved access amongst a growing number of the Malaysian population, online
insurance solutions will not only become more viable, but also easier to adopt.
In this, the agency force cannot afford to stagnate. Other industries with heavily digitalised
services, like the air travel, hospitality and retail sectors, have elevated the digital literacy of the
Malaysian population and improved their appetite for efficient delivery and transparent pricing of
services. In this sector, there remains significant untapped demand for general insurance
products as a whole. The low penetration rate of 1.4% for general insurance, which is
measured in terms of premiums as a share of the nation's Gross Domestic Product, is actually
symptomatic of this. Thus, agents who move quickly to improve their digital outreach will have a
first mover's advantage and are likely to gain a growing group of digitally literate Malaysians.
Thirdly, conducting robust suitability assessment for customers.
One thing worth emphasising repeatedly is this; financial services offered must be suitable to the
needs of the customers. While the Bank's Guidelines on Product Transparency and Disclosure
attempts this by stipulating the 'rules of the game', we look to insurers and the agency force to
'play' according to these rules and seek out ways to achieve the outcome of ensuring consumers
obtain financial services that are suitable to their needs.
Agents should develop their individual capacity to analyse customer requirements to identify their
needs and develop risk profiles to match them with suitable products or combinations of
products. For example in the case of motor insurance policies, agents should create awareness
on optional add-on covers that are available and underwriting factors that will affect motor
insurance premiums. Appropriate profiling of a customer can be crucial in helping agents identify
customised product recommendations efficiently.
Finally, perhaps I should bring your attention to two upcoming developments. Firstly, we
understand that the industry is in the midst of finalising a recent independently-conducted
Customer Satisfaction Index (CSI) that will be a means to gauge the insurers' performance
against the enhanced insurance industry's Customer Service Charter which was introduced in
January 2018. This survey includes minimum service standards that reflect the guiding principles
for good customer service. The results of the CSI survey is expected to be finalised by end-2018.
I would urge you to familiarize yourself with the Customer Service Charter of your principal
insurers and use it to guide you in your dealings with customers so as to ensure good customer
experience.
Secondly, the Bank is at a fairly advanced stage of finalising the policy document on fair
treatment of financial consumers. This will address the Bank's increased expectations on
financial institutions, including insurers, to cultivate a culture of fair dealing and responsible
behaviour. The onus will be on insurers to ensure agents observe new standards to exercise due
care, skill and diligence in dealing with financial consumers. We should expect principal insurers
to accord greater emphasis on the importance of (1) providing clear and concise product
information to customers to enable them to make informed choices, (2) offering products that are
appropriate to the customers' needs and financial circumstances, and (3) providing individualised
advice that is in the best interest of the consumer.
Let me conclude.
Agents have always been and will continue to be important agents, including agents of change in
the insurance sector as they are uniquely positioned to read the pulse of customers. This change
could involve the insurer-agent relationship and the balancing of customers' interests. The time
could be appropriate for general insurance agents to reorganise themselves into an industry
association that can effectively mobilise the power of collective action and enable the agents as a
cohesive force to better serve customers' interests. This will also put in place a foundation for the
possibility of setting standards on conduct, education and self-regulation of individual agents.
Cultivating a solid industry association is neither an easy nor a short-term task but the benefits
are immense.
The Bank remains optimistic that agents will continue to play a key role in Malaysia's insurance
industry, and will be crucial to take us to the next level. In all this, agents must not deviate from
their raison d'etre, i.e. intermediating between the insurer and the customer. Ultimately, we all
should recognize that it is the interests of the customers, which is at the heart of it. Jack Ma of
Alibaba, aptly said it, "Customers should be number one." The challenge presented upon you
today, is to embrace the Digital Economy and not lose sight of this.
On that note, let me once again thank PIAM for the opportunity to share some thoughts with you
today and I wish you a productive convention ahead.