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.