The impending implementation of phase 2 detariffication/liberalisation of the insurance sector is likely to see further competitive pressure on the pricing of motor and fire products for general ITOs.
KUCHING: The impending implementation of phase 2 detariffication/liberalisation of the insurance sector is likely to see further competitive pressure on the pricing of motor and fire products for general insurance and takaful operators (ITOs).
The second phase of liberalisation is anticipated to commence once the Covid-19 pandemic has been contained with most of the population fully vaccinated, opines AmInvestment Bank Bhd (AmInvestment Bank).
“The recovery of insurance and takaful industry’s premium growth and profitability strongly correlates with economic growth. Premium growth of ITOs is expected to improve once herd immunity against Covid-19 through vaccinations is achieved,” it said in its sector review yesterday.
This comes as in the second half of 2021 (2H21), the recovery of ITOs’ premium growth remained uneven as challenges to premium growth in 3Q21 remained.
Recovery will be delayed but not derailed with the implementation of the enhanced movement control order (EMCO) where stricter measures have been reintroduced in selected states, including those in the central region with high Covid-19 cases, it said.
“We see challenges in premium growth of general ITOs in 3Q21 due to temporary impacts of the lockdown restrictions which will impact car sales,” AmInvestment Bank added.
“Also, the softer sentiment of potential home buyers in the near term is likely to affect property sales. Motor and fire are the largest segments of general ITOs’ portfolio.
“Meanwhile for life ITOs, the ongoing pandemic will also see challenges in sales of life insurance products in the near future.
“The suspension of face-to-face meetings is expected to lead to slower sales from the bancassurance and agency distribution channels.”
Looking ahead, the research house said the easing of mobility restrictions for those fully vaccinated and the reopening of more economic sectors and higher capacity of operations in tandem with the rising percentage of vaccinated employees in the manufacturing, construction, mining and quarry sectors under various phases of the National Recovery Plan (NRP) starting this week could see stronger premiums for ITOs in 4Q.
AmInvestment Bank further expected life ITOs to enhance their digital capabilities going forward which will include more straight-through processing for policies.
“The ongoing digital enhancements will not only improve engagements with customers but also enable agents to manage their dealings more efficiently with the ITOs.
“Underwriting profits for ITOs to remain profitable despite the challenging environment. In 2H21, underwriting profits of general ITOs are envisaged to remain positive despite challenges on the top line in 3Q21.
“This is due to the expectation that claims, especially from motor, will remain low in the near term with lesser traffic on roads due to the movement control order. Travel restrictions will be relaxed only for fully vaccinated individuals.”
As for life ITOs, business operations, excluding those impacted by interest rate movements, are anticipated to still be profitable in 2H21. AmInvestment Bank expect medical claims to stay low for the meantime as policyholders are unlikely to seek hospital treatments unless necessary.
“The second half of the year could see life ITOs setting aside additional provisions conservatively for potential claims on deceased policyholders. This will be based on the National Registration Department’s updated list of deceased persons.”