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Conclusion

Malaysia insurance industry is still growing from years to years, increasing number of companies formed due to increasing demands of market. General insurance industry is also developing and improvising to satisfy the needs of markets. The market growth of general insurance is mainly due to increase number of sales in motor insurance. As for market share of general insurance in Malaysia, as usual, motor insurance is the highest out of all the other insurance. This was mainly due to increasing number of moving vehicle in Malaysia from years to years, as every household has at least one car. In terms of general insurance buyers, there are three types which are individual consumers, small and medium business, and large business and organizations. Malaysia has a relatively low buyer power as most of the customers are individual customer, and those having a lower deal of bargaining power compared to the others.  There are also plenty of direct general insurance in Malaysia, but most insurance companies face the issue of under-pricing of motor and fire insurance products having a tariff rate. Somehow, motor insurance rates have been revised and expected to detariff.

To increase sales and maintain their marketplace position, different tactics and strategies are developed. The marketing systems include database development, competitive analysis, product development, and also leveraging marketplace opportunities. In terms of database development, most insurer developed a database to identify their current customers and also to evaluate which types of products are leading in sales. Secondly, insurers not only deal with the customers, they also need to analyze the other competitors on what are they doing in terms of pricing, market strategies, skills and more. As for product development, insurers always have to predict and identify the needs of customers, so that they can always come out with new product that can attract their customers to increase their sales and profit. A better understanding on the customers will always benefit the company. Last but not least, leveraging marketplace opportunities, which means that insurance companies analyze on current status of the marketplace such as technology effects.

Distribution systems are the method used by insurance firms to reach out to the customers, while in Malaysia, insurer reach out through direct writer, wholesaler, agency system and also broker market. As for distribution channel, most cost effective way would be direct response system as this is way cheaper than using agency. Furthermore, insurer also used internet to provide online assessment so that it can save time and cost. Besides that, call center is also one of the channels, insurers tend to communicate customers through phone to advise and suggest on different issues such as claims or product information. Bancassurance is also one of the channels, which implies the partnership between a bank and insurance films. Malaysia distribution system and channels had developed from years to years. At first, Malaysia mainly depends on agency force and brokers, and now, internet and also bancassurance have also grown significantly.

Once and again, insurance industry is highly competitive, especially in general insurance as more and more companies had been formed. In near future, market value for cars will declined, which will impacts the car sales and also the premium for motor insurance industry. Hence, Malaysia insurance companies need to be able to analyze the economic and political risks and opportunities. Lastly, insurance industry is still growing and opportunities only come to those that understand the local market

General Insurance Distribution Channels

Direct Response System

Direct response system is the most cost effective for the consumer because the marketing of products is cheaper than using an agency network and the competition is greater. Direct response marketing solicits business through advertising through traditional media, by telemarketing, or Internet. The consumers can compare policy benefits and prices easier with the Internet, since there are many sites devoted to comparing insurance prices. For the insurer, direct response model allows the insurer to sell to a much larger population than would be feasible using agents, and for much less money. Direct response system of selling is more limited when selling general insurance as the complexity of most policies. The only general insurance that is sold by direct response are personal lines, including homeowner's and auto insurance (“Insurance Marketing System”, n.d.).

Internet

Purchasing insurance online is convenient, faster and often cost lesser. With click of a mouse you can buy any policy at anywhere and anytime. The distribution efficiency also leads to cost efficiency. Since the customer buys directly from the insurer, the commissions can be saved and therefore lower premiums is charged. Insurance product quotations and policy wording are made available online. Payment of premiums is instant, made easy through online payment via credit cards.

According to Zaharudin Daud (2015), Etiqa as a true multi-channel distributor, is also one of the pioneers for direct sales through the internet, with its online offerings spanning both Motortakaful.com and Maybank2U.

Call Center (Telemarketing)

Insurers also periodically send out promotional product brochures (direct mailers) to existing policyholders without servicing agents. Telemarketers from call centres owned or appointed by insurers also phone customers to advise and market personal lines, as well as help to file claims. Insurers also embark on cross-selling strategies to serve the needs of their customers (General Insurance Association, n.d.). Etiqa Oneline is the call centre for Etiqa Insurance Berhad and Etiqa Takaful Berhad. With this call centre, customers can access to information regarding products and services like making changes to their policies. Besides that, Pacific & Orient Insurance provides a quick and easy way to purchase insurance, which is called teleinsurance. Teleinsurance, the first insurance Call Centre to provide a new insurance quote or online renewal service, with policy delivery within 24 hours (Pacific & Orient Insurance Co. Berhad, n.d.).

Bancassurance

Bancassurance is the partnership between a bank and an insurance company, whereby the insurance company uses the bank sales channel in order to sell insurance products. Bank staff members, rather than insurance agents, become the point of sales or point of contact for customers. Bank staff members are advised and supported by the insurance companies through product information, marketing campaigns and sales training. They are also required to pass the relevant licensing examinations before they can sell insurance or provide insurance-related advice (General Insurance Association, n.d.).
             In Malaysia, there are many partnerships between insurance companies and banks to sell from simple low premium insurance solutions to sophisticated financial planning products catering to the high income group customers. Almost all of the local banks in Malaysia have partnership agreements with insurance companies. For example, Alliance Bank Malaysia Berhad (Alliance Bank) has bancassurance partnership with Prudential Assurance Malaysia Berhad (PAMB). According to Jaganathan (2014), at the current penetration level of 5% of the banking population, there remains significant room for growth. Bank has envisaged a bancassurance penetration target of 10% as part of the move towards diversification of insurance distribution channels in Malaysia. 

Bancassurance benefits consumers in the form of convenient access to a wide range of integrated financial services from a single provider, and more competitively priced insurance products as a result of insurers passing on cost savings arising from lower distribution costs. The more effective use of technology and higher investments in the development of human resource competencies by banks and insurers to support the increased customer focus that is central to an effective bancassurance strategy, is also favourable to consumers. Over the time, this is expected to lead to significantly improved services to consumers and thereby, a higher overall level of consumer satisfaction (“Development of Bancassurance in Malaysia”, n.d.).

Bancassurance Opportunities
For Banks	For Insurers
• Greater income stability	• Expand customer base
• Expand product offerings	• Lower distribution costs
• More productive use of customer database and branch network	• Enhance ability to segmentise markets to support more effective product design and marketing efforts

 (Source: Bank Negara Malaysia. Retrieved from http://www.bnm.gov.my/files/publication/dgi/en/2004/06.box1.pdf)

Table 4.1: Bancassurance Opportunities for Banks and Insurers

            Table 4.1 illustrates the bancassurance opportunities for banks and insurers. In Malaysia, there are three predominant bancassurance models, including referral arrangements, distribution agreements and integrated services. Referral arrangement is the one which insurer is placed on the panel of a bank for the provision of certain insurance covers to the bank’s customers. Under distribution agreements, banks act as intermediaries for insurance companies and promote the insurance products of its bancassurance partner to its customers. For integrated services, new subsidiary will be created by insurance company and bank to deliver banking and insurance products to customers in a seamless manner.

Development of the Distribution System and Channels

 

(Source: Ernst and Young, 2011)

Figure 4.2: Distribution Evolution in Non-life Insurance Markets in Emerging Asia and Other Sample Market

Figure above is extracted from the report “Motor insurance – Asia’s growth engine” which is published by Ernst and Young in 2011. It shows the subjective view from Ernst and Young of the maturity of the distribution in motor insurance in Asia compared to UK and Australia.

            The figure above shows the graph of cost of distribution against maturity in Asia compared to UK and Australia. It clearly shows that mature markets tend to focus on direct methods in this technological era. However in 2011, Malaysia which still depends heavily on agency force and brokers has high cost of distribution is categorized as not mature markets. Korea which has mature economics, with an internet penetration of over 80%, e-business in Korea is an important distribution method. The foreign insurers in Korea are targeting new distribution channels such as internet to create the presence. (Ernest and Young, 2011)

Over these few years, the development of Internet has encouraging the increase of amount of internet users. According to Vincent (2014), the Gen Y makes up 40% of the Malaysian population and is growing at a rapid rate of 2.6% per annum. Within the next few years, this group will be the potential buyers of insurance. This generation grew up with the digital age, insurers are therefore compelled to find creative ways and innovative channels to optimize distribution of their insurance products.

	2012	2013	2014	2015	2016
Internet Users (’000)	17,755.3	18,508.0	18,896.5	19,652.6	20,201.3

(Source: Euromonitor International. Retrieved from http://www.euromonitor.com/malaysia/country-factfile)

Table 4.2: Internet Users in Malaysia from the year 2012 to 2016

            Table 4.2 shows the amount of internet users in Malaysia from the year 2012 to 2016. Over the years, the revolution in mobile devices, Internet usage and social networking are changing the way consumers connect, interact and transact businesses. This results of the emergence of new direct channels using internet and social media. As of end 2013, the penetration rate of mobile phones in Malaysia was 144%. The penetration rate for Internet Broadband was reported at 67% with a total of some 2.2 million private households. The mobile commercial is forecast to grow more than seven times to reach RM3.43 billion in 2015 which translates to 60% of the online shopping market (Vincent, 2014).

Besides that, Bancassurance business has grown significantly in Malaysia. When bancassurance first started in 1993, it gained a mere market share of 2% of new business premiums. However, over the last two decades, the growth of bancassurance has been phenomenal, capturing about 60% market share for single premium business. In terms of its share of annual premium business, it has grown steadily in strength to 12% of new business premiums. The tied agency channel has registered a 23% market share for single premium business, and 86% of new business for annual premium policies (Vincent, 2014).

Figure 4.3: Market Share Based on Weighted New Premiums in 2013

As of 2013, in terms of market share based on weighted new premiums, the agency channel was still leading with 80%, while the Bancassurance channel was a distant second with 16%. Direct channel contributed 2% of market share, with the remaining 2% from brokers, financial advisers and other channels (Vincent, 2014).

General Insurance Distribution System

Distribution systems can be defined as the sequential flow of procedures, systems, and activities which are designed and linked to facilitate and monitor the movement of goods and services from the source to the customer (Carnrite, n.d). For the case of insurance company, it refers to the method used by an insurance company to reach out to the insured through direct writer, wholesaler, agency system, or broker market.

Agency system

            In Malaysia, it found that companies that focus on writing Motor business depend heavily on the agency force. There are two main types of agency system in general insurance distribution system, which are exclusive agency system and independent agency system. The main difference for the two agency systems is that, exclusive agents are contracted to sell one policies for a single insurance company while independent agents can sell the policies of many different companies (Marshall, 2016).

Figure below shows the number of agents in Malaysia from 2007 to 2013.
Source: Actuarial Partners’ analysis of Takaful and Insurance Statistics by Bank Negara Malaysia

         The above chart is extracted from “General Insurance and Takaful industry market trend in Malaysia” presented by Nurul Syuhada Nurzami during the SOA General Insurance Seminar held on 19 August 2014 in Singapore. It provides the overview on the market trends of the general insurance and Takaful industry in Malaysia. The chart shows the number of general insurance and Takaful agents in Malaysia from 2007 to 2013. Although the number of agents decrease results from the growth of non tranditional distribution channel such as direct mail and internet, agency system still remains as the main distribution system used by the insurance company to reach out the insured.

For example, in year 2013, Chief Executive Officer of Maybank Ageas Holdings Berhad, Kamaludin Ahmad said that Etiqa Insurance and Takaful is on its way to becoming the market leader for insurance and takaful. Etiqa has a 23,000 strong agency force and yet they are still working to build a wider distribution footprint for their products and services to achieve the aspiration. At a press conference in Kuala Lumpur in 2015, Kamaludin Ahmad said that Etiqa, a seven-year old brand has become the No. 1 player in General Insurance and General Takaful business in Malaysia, with a market share of 12.8%. (Official Etiqa Insurance and Takaful Facebook page, 2015). It seems although that the expense ratio for agency system is higher compare to others distribution systems as it paid out commission, agency system still continue to be the primary distribution channel for general insurance products.