Policyholders abandon life insurance on other factors

Statistics show
the number of new business policies for direct insurers are also falling for the whole life category

By RAHIMI YUNUS / Pic By MUHD AMIN NAHARUL

The introduction of the Goods and Services Tax (GST) more than two years ago was not the only reason behind the rise in consumers abandoning their life and medical insurance, said the Malaysian Insurance Institute (MII).

“In my personal opinion, I don’t think the GST is the sole contributing factor to the lapse rate. The natural instinct for people is to actually save for rainy days. Hence, you would want to maintain your policy,” MII CEO Datuk Syed Moheeb Syed Kamarulzaman said at the Medical and Health Insurance Seminar, organised by MII in Kuala Lumpur yesterday.

He said consumers are not inclined to abandon their long, paying policy subscription just because of a consumption tax.

“You would not want to let that small increase (by GST) affect what you have saved over the years,” he said.

He was asked to comment on the rise in cancelled life insurance policies. There were 325,396, 531,444, 610,771 and 639,018 life insurance policies surrendered in 2013, 2014, 2015 and 2016 respectively, according to the central bank’s July figures.

The statistics showed that the number of new business policies for direct insurers were also falling for the whole life category from 178,592 at the end of 2013 to 127,970 (2014), 101,713 (2015) and 82,511 at the end of last year.

However, endowment policies rose from 230,245 at the end of 2013 to 292,404 as at December 2016.

Overall, the various categories under ordinary life, investment-linked and annuity had registered growth from a total of 1.367 million policies in 2014 to 1.4 million at the end of last year.

An insurance analyst from a local research firm said the jump in life insurance policies terminated could be due to the mis-selling.

“We believe that there is a possibility that the jump in life insurance policy surrendered was due to policyholders’ difficulty in making regular premium payments, which often resulted from the mis-selling approach and high-pressure sales practices.

“Consequent to that, these policyholders are unlikely to maintain the life insurance contract and the premium they have to pay,” the analyst told The Malaysian Reserve.

The analyst, however, believes the number of policyholders who surrendered their policies will taper off in the future.

“Starting in 2015, the rate has trended down with the latest increment rate recorded at only +4.6% year-on-year in 2016. The positive movement was understood to be driven by the improvement in professionalism, as well as services of insurance agencies over the years, as a result of Bank Negara Malaysia’s stricter policy enforcement to protect consumers,” the analyst added.

The central bank introduced the Life Insurance and Family Takaful Framework via a concept paper in November 2015.

The framework is aimed at liberalising the insurance market in a manner that would ultimately benefit consumers. It will be fully effective in 2019 and the Balanced Scorecard system is expected to be introduced next year.