Take note when buying Insurance online

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BEGINNING next year, insurers must offer pure protection products through a direct channel without commissions under the LIFE Framework – a Bank Negara effort to bring costs down as most Malaysians are under-insured.

With new technologies and new markets, liberalisation isn’t something we can stop, shrugs National Association of Malaysian Life Insurance and Family Takaful Advisors (Namlifa) president James Bong.

We’ve been conventional for too long. Since the introduction of investment-linked products, there hasn’t been much innovation, he says matter-of-factly.

Liberalisation will encourage more innovative products which we need if we are to achieve the 75% penetration target, he said.

“Our neighbours, Singapore, Taiwan and Hong Kong are more advanced than us. On average, per person has five to six policies.

“In Taiwan, the insured population is 260%. In Singapore, the insured population is almost 100%. We’re divided only by a causeway yet we lag behind with a penetration rate of 55%. Why?”

In January, Sunday Star front-paged the introduction of LIFE Framework. The central bank completed its public consultation on the Framework in 2014 and it has been implemented in phases. Besides the soon-to-be-introduced direct channel, Bank Negara governor Datuk Muhammad Ibrahim had also urged the industry to adopt
untapped channels including banking agents, retail chains, employers and cooperatives, to diversify the delivery of services, StarBiz reported last month.

The potential for growth in the insurance and takaful industry “is significant”, he had said, with estimates placing the life and medical insurance protection gap alone in Malaysia at between RM550,000 and RM723,000 per household. Lauding the LIFE Framework for encouraging competitiveness among industry players, Bong says this is important as policyholders today expect a different and higher standard of service.

For an industry to grow, different distribution channels and new methods of selling are needed to reach the public. Direct selling through the Internet offers an additional choice for consumers, he admits.

But if left to their own devices, consumers may never think it’s the right time to get coverage, he adds.

“If you had chest pains last night and you quickly log on to the Internet to buy insurance the next day, is that policy valid? No. Insurance is bought when there’s no need. When there’s a need, you cannot buy because your application will be declined.”

Insurance, he explains, is based on the principle of utmost good faith. Simply put – you must know your body and any material facts must be disclosed. Otherwise, the contract is voidable.

“Before you make an online purchase – whether it’s insurance or anything else, read the fine print carefully otherwise you won’t understand the content and it can turn ugly when there’s a claim to be made down the road.

Instead of coverage, you could end up with an invalid contract.

“If you suffer from headaches and take painkillers daily, you have to declare your condition because it may be a material fact that underwriters want to know.

“Failing to declare this may amount to non-disclosure of material facts which is against the principle of utmost good faith. Your contract could be invalid. So, for consumers to buy direct, they must know and understand this principle.”

Reading is one thing but understanding is another, Namlifa’s immediate past president and the association’s Financial Life Practitioner Council chairman Victor Kho cautions.

Stressing that while the association isn’t against the move, it feels that most aren’t ready for it.

“A lot of people can’t differentiate between carcinoma in situ and cancer, or an artery and a vein, which agents must know. Soon, you will see policyholders queuing up to sue insurance companies when claims get rejected because they didn’t understand the terms.”

Before buying a policy, Bong says, a consumer must know his or her needs. But how do you know what you need and how much coverage to buy if you’re a lay person?

“Understanding the protection gap is also crucial. The gap is what you are insured for as opposed to what you’ll need if something happens. How much do you leave behind for your widow or next of kin?”

The association’s members are professionals trained to assess your needs, he adds. Policyholders are forgoing this service when they buy online, he points out.

Citing an example of a policyholder who needs to be admitted to the hospital, Bong says it can be a stressful and confusing affair as the patient will have to navigate through legal issues they may not understand. But it’s unfair to expect agents to service you if you buy online, he argues.

“Anything you’re not sure, the agent will come running. We service you over a 20-30-year period. Gone are the days of product pushing. An agent is a financial doctor who helps you take precautionary measures so that your family is well taken care of in case anything happens to you.

“We spend tens of thousands on courses, that’s why we know a lot. We are a onestop centre for policyholders. Yes, you are saving a little bit by buying online but is it worth it?”

Quoting a global consumer insurance 2012 study, he shares how in Malaysia, 93% of respondents were happy with the product they bought and the agents’ service. Members guilty of misconduct are terminated and reported to the Life Insurance Association of Malaysia (Liam) which issues the licence to agents, he adds.

A senior insurance agent with over two decades in the business, admits to being a “little worried”.

Commission – payable over a six-year period, is capped at 171% for traditional insurance plans, and 160% for investment-linked insurance products, he says, but the service policyholders get is for life.

“It’s unfair that after an agent spends so much time advising you, the sale is closed online and the agent is not compensated for his time. Plus, when you buy online and there’s a claim to be made, an agent may not be able to help you even if he wants to because he doesn’t have access to your file.

“Non-disclosure is another problem. If you are 172kg and you claim to be much lighter to avoid loading charges or higher premiums, your future claim will be invalid,” he says, echoing Bong’s concerns.

Source: The Star (27 November 2016)