by NURUL SUHAIDI/graphic by TMR

THE introduction of digital insurers and takaful operators (DITOs) will help narrow the critical protection gaps in Malaysia, according to RAM Ratings.

DITOs, it said, will not pose significant competition to incumbent operators and insurers.

RAM Rating Services Bhd (RAM Ratings) Financial Institution Ratings co-head Sophia Lee said in a statement today that the introduction is in line with Bank Negara Malaysia’s (BNM) value propositions as it currently discusses on paper the licensing framework for DITOs.

The unserved/underserved segment will be the strategic priority for prospective digital players.

“Some DITOs might eventually make a foray into the latter’s business fields and those with unparalleled business propositions can capture market shares in areas such as motor, fire and travel insurance,” she said.

As such, incumbents, meanwhile, are prepared to take on the newcomers, having ramped up digitalisation efforts to better future-proof their businesses.

RAM Ratings is in view that incumbents and DITOs will operate in a competitive environment where both will collaborate to boost insurance accessibility in the country as online insurance is steadily gaining traction worldwide.

“Virtual underwriters have relied on technology to improve the different aspects of the insurance business from distribution to claims processing, but many are still in the red, partly due to the hefty spending to develop digital capabilities,” she said.

While automation reduces the need for sales agents and claims adjusters, it is still unclear if digital insurers will be more cost-efficient than incumbents, given the heated competition for talent recruitment to support digital operations.

She noted that BNM is now actively championing the digital transformation of the financial sector, where licensing DITOs is a key initiative that is likely to be issued in 2023.

“The regulator expects prospective DITOs to meet the core value propositions of inclusion, competition and efficiency,”

Due to that, it has set a lower capital requirement of RM40 million (traditional insurers: RM100 million) and will iron out other regulatory flexibilities for these budding companies.

Lee said the digital channels are also useful in extending affordable life coverage to the unserved/underserved, but hurdles like the poor financial literacy of the target customers might inhibit their effectiveness.

“Therefore, agents will remain relevant to offer financial advice and service to high-income policyholders and technologies can be used to enhance agent’s productivity and not displacing them.”

“While potential DITOs might compete with incumbents at some point, its role in boosting insurance penetration in Malaysia is inevitable,” she added.