Musings About Asia Pacific 2023 – Kuala Lumpur, Malaysia
In August 2023, I had the opportunity to speak at conferences in Kuala Lumpur – the Asia Motor and Claims Management Conference and the 2nd Insurtech Leaders’ Summit APAC 2023. Through these engagements and meetings with the local insurance community, I gained further takeaways and learnings about this market.
Localized Understanding and Approach
Malaysia’s insurance industry is a local focus-based market. There is a preference for products and services which cater directly to the local population, and foreign investments must consider the nuances of the market. Learning and understanding of the present opportunities and challenges is key. It is good to understand that Malaysia is a tariff market, and this requires an experienced insurer to help in navigating current operations when considering new implementations.
For instance, proxy insurance distribution and selling are common, such as family members selling among themselves as agents. There is not concept of composite insurers and no official tied agents in terms of distribution. A global insurer with footprint in Malaysia may also offer a different setup as compared to other offices in the region. For example, Sun Life Malaysia’s focus is on takaful insurance and on bancassurance with CIMB, as compared to Sun Life Singapore, which looks at high-net-worth-individual insurance coverage.
The industry looks towards the central regulatory body, Bank Negara Malaysia for guidance before further investment in technology and innovation, like the claims data exchange framework in accordance to the Financial Sector Blueprint 2020 – 2026 and Financial Technology Regulatory Sandbox Framework.
Investments for Insurtechs
Through meeting a local early-stage venture capital firm, I gained a better understanding of investment in the country. Malaysia is a traditional market and industry participants will validate if an insurtech is working well or to be educated on successful case studies before further implementation of a new technology or process. For instance, the concept of parametric insurance will work for the agriculture sector in Malaysia, but data is lacking and very few in the industry are attempting implementation. Such case studies can be found in digital insurers like Tune Protect, who are using parametric cover for travel insurance.
Data exchange is a challenge, with policyholders not contributing much data except at claims. Data is also not utilized well, especially at the retail market level. Sectors like commercial insurance is largely an untapped market too.
The sentiment that insurtechs must go beyond distribution is shared. Insurtechs tends to develop solutions for front-end activities in the insurance value chain, attracting better revenue and investments. More can be done for other parts in the value chain though. There is also a sense that insurtechs in Malaysia rather compete than work with the incumbents.
The country is also in need of talent but is aware of its challenges (such as currency performance and population size) affecting foreign investments in the country, with investors having preference for other Southeast Asia countries like Indonesia and Thailand instead. If more talent from IT operations and talent with strong core insurance knowledge like agents, brokers, and actuaries participate in the insurtech space, there will be more targeted solutions for the market.
Opportunities for Vendors
In speaking with a local insurer, innovation will flourish in Malaysia’ insurance industry only if change need to occur both internally and externally. More internal change requests need to be raised to solve internal challenges, which will help bridge the disconnect between vendors and insurers today. An understanding of what is needed by the stakeholders is key; like providing RPA to underwriters is sufficient for automating current processes. And that analytics and AI/ML adoption may still require more time for it to be useful to the insurers’ operations.
Innovating with Regulation in Mind
Malaysia insurance is a market with potential for growth and change but it is a relatively conservative and cautious industry, with regulation adopting a learn-and-see approach before deep investments. This may affect potential foreign investments and to head for more open market like Thailand instead. For instance, approval by Bank Negara Malaysia for cloud adoption by an insurer takes time. Hence, insurers wanting to adopt new technologies find it challenging to meet regulatory requirements on top of keeping up with new technologies.
Culture and Innovation
An understanding of the insurance culture in Malaysia is important, as these are often not captured in standardized processes. For example, auto claims filing, and approval will need to include steps like police reporting at the beginning of the process and to have the database include unregistered tow truck companies. This will then enable the adoption of innovation like touchless claim to be relevant in the market, as it captures the unique characteristics of the localized process.
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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: