THE LIFE INSURANCE industry has changed considerably since the Covid pandemic. Over the past five years, the life insurance penetration rate, a common indicator used to observe changes in insurance coverage acceptance, has hovered around 54% among Malaysians. But how exactly has demand for insurance shifted? Several key financial indicators, such as surrender rate and new business premium, are analysed here, in examining the pandemic’s impact on the industry.

One interesting observation is how the surrender rate, which usually hovers at the 5-6% mark, has remained unchanged. This indicates that about 95% of policy value is still being serviced and maintained. But for B40 customers, whose policies are usually based on lower premiums, their surrender activity may not be significant enough to affect the overall surrender rate.

The life insurance industry’s new business premium (NBP) grew by 12% year-on-year in the second quarter of 2019, but dropped by the same percentage when the pandemic struck. In 2021, the NBP grew to a more aggressive rate of 24%.

There are multiple possible reasons for these movements in top-line performance over the past two years. Job losses from the nationwide lockdowns since March 2020 may have caused people to reshuffle priorities, relegating insurance coverage to the bottom of the priority rank. At the corporate level, many business owners, on the brink of survival, may have removed some of their employee benefits previously afforded to their staff, such as group insurance schemes.

By contrast, those who lost their jobs during Covid may have also realised the importance of having a personal insurance, especially individuals who are now part of the gig economy; this group has likely contributed to the increase in demand for insurance. Frequent health discussions between family and friends on the increased risk of illnesses would likewise have brought greater awareness about the range of available insurance products.

Heightened volatility in mainstream investment assets such as equities, bonds, precious metals and commodities has likely made investment-linked products more appealing, due to their perceived higher stability in investment returns. But this stability is not guaranteed. Performance of unit funds are generally correlated with mainstream investments, and in practice, investment decisions are neither always the most optimal nor the most rational.

Observations on the surrender rate and NBP have led to the hypothesis that there may be an overall improvement in life insurance penetration rate, although an imbalanced movement across income groups still exists. The B40 income group, in particular, may have lower influence and weightage compared to other income groups.

Changes to Supply

As with its demand, insurance supply also changed with the circumstances. Covid was cataclysmic in spurring digitalisation in the industry. The status quo before that was to delay its adoption for as long as possible, since updating legacy systems required significant upfront capital expenditure.

Lyne (not her real name), who is with one of the largest insurers in Malaysia, says, “With the latest technology in place, we enable the agency force to engage with the company, in order to remotely assist customers with claims and purchasing of policies.” But such swift change has not been without its hiccups. “Our staff from all ranks put in relentless hours of work for the agency force, who are at the forefront, to deliver the necessary services. Clients have also been very understanding and patient during this stage, and we are grateful for that.”

The industry’s digitalisation contributed to the rebound in profits in 2021. With greater functionalities, customers are now able to manage their policies online more seamlessly, allowing insurers to efficiently reallocate manpower elsewhere and to cut down on service costs. More directly, new online products have created another muchneeded revenue stream, cushioning the drop in revenue in 2020 and boosting it in 2021.

On the flip side and in light of Covid, groups that have higher mortality risks such as older adults, the immuno-compromised, front-liners such as medical workers, and those with comorbidities face greater difficulty obtaining medical coverage. Frontliners, for instance, may be imposed with higher premiums, reflective of the higher risks they face.

The situation is still somewhat hazy; the long-term effects of Covid are many and not yet fully known. At present, it is not uncommon to hear of fatigue, shortness of breath or blood clots as symptoms of long Covid, making it potentially harder for those who have recovered to obtain insurance. However, increased mortality risks do not come from Covid infections alone. The lockdowns have created their own set of health problems. Some chose, or were forced to, delay medical treatment during the lockdowns. Mental health issues have also been on the rise. All in all, these may elevate the overall mortality risks of the population, hence leading to a readjustment of premiums. Equity concerns also abound. The life insurance penetration rate is already dismal among low-income households, and higher premiums will widen this gap.