FOR Allianz Malaysia Bhd, one of the larger listed insurance players in the country, all eyes are on the liberalisation taking place in the motor insurance sector.
Over the last four years, the Government has been gradually removing statutory tariffs for motor insurance policies, enabling insurers to set the price for insurance premiums. The Government’s plan is to fully liberalise motor tariffs by 2016. Prior to the liberalisation move, motor insurance tariffs were subjected to minimum pricing caps imposed by the Government.
As a result, in some segments, such as third party claim policies, insurance companies didn’t earn much money and sometimes suffered losses due to hefty claims.
However, the liberalisation of the market is music to Zakri Mohd Khir’s ears, the newly appointed country manager and chief executive officer (CEO) of Allianz in Malaysia, who reckons that a freer market would lead to a rise in competition, which, in turn, would see resilient players succeeding.
“We welcome the change as it is an opportunity for us to show how adept and versatile we are. It also presents us the chance to display a lot more innovation and ingenuity,” Zakri, who is the first local to head Allianz in Malaysia, tells StarBizWeek. Allianz Malaysia is a major player in the motor insurance sector. It commands 12.3% of the general insurance market.
For the first half of financial year 2014 (FY14), the general insurance business (of which motor contributes 62% of the portfolio mix) contributed some 82% to Allianz Malaysia’s profit before tax of RM211.5mil. Its life insurance segment contributed the rest to profitability.
Zakri says Allianz Malaysia is in a good position to fight competition, as it can leverage on its economies of scale to reduce operational costs. He adds that the company can also draw on the experiences of its parent, German-based Allianz SE, which has operations in many liberalised markets.
Allianz SE controls 69% of Allianz Malaysia, while its second-largest shareholder is the Employees Provident Fund with 4.6%. The stock enjoys a 25% free float.
However, RHB reckons that the stock is fully valued at its current price of RM12.90, having outperformed the Main Market index by 8% year-to-date. At that price, Allianz Malaysia is trading at a PE of 15 times FY14 earnings, notes RHB.
Zakri says his areas of focus would be to come up with innovative products and improve further service levels. “This is because in a deregulated market, service will be all-important, as customers determine their level of appreciation of your products. It’s not sufficient to compete on pricing.”
Another priority of his is to make sure each segment is viable on its own, be it motor, fire, marine and health insurance in the company’s portfolio mix.
“In the motor segment, for instance, we do not expect to make a lot of money in a deregulated market, but expect a positive balance at the end of the day. It will be small but because of the sheer volume that we have captured, the profits will be decent.”
On his take on what motor premiums are going to be post-liberalisation, Zakri says it will find its own level, initially dropping and likely to be positive after it reaches a steady state. In a deregulated market, motor premiums will be priced according to driver and vehicle profiles. Risk-based pricing would enable customers with good risk profile to enjoy more competitive rates than those with higher risk ratings.
Analysts note that the local motor insurance tariff has not been revised for over three decades. “Like other liberalised markets, we expect competition to intensify once the statutory tariffs are abolished. Competition will drive down premiums, push the claims ratio and drag profitability initially. But we expect some normalisation over the years and the industry could be better off in the long term,” notes Alliance DBS Research.
The research firm says the German insurance market took ten years to normalise after it was liberalised in 1994, while in Singapore, the motor insurance business only registered underwriting profit in 2012 after six years of losses.
Allianz Malaysia continues to enjoy healthy margins in its general insurance segment. For the first half of 2014, its net earned premiums jumped 19% despite a 9% growth in gross premium. This is the result of a higher retention of 77%.
Alliance DBS Research says Allianz Malaysia has a balanced growth between motor that provides scale and non-motor that drives profitability. In the non-motor segment, fire insurance makes up 15% of the general insurance portfolio mix, while marine and personal accident and health, come in at 3% and 6%, respectively.
Allianz Malaysia is also charting steady growth in the life insurance segment. RHB Research notes that Allianz Life Insurance Malaysia (ALIM) posted a 27% growth in gross written premiums and a 15% rise in annualised new business premiums (ANP) due to continued expansion of its multi-distribution channels.
ALIM is the fifth-largest player in the life insurance market, capturing RM0.9bil in gross written premiums for the first half of the year. It is principally an agency-based force with 6,918 agents currently – still a long way to its 10,000 target by FY15.
On possible regulatory changes emulating Singapore’s move to allow clients to buy life insurance products directly from insurance companies, saving on commissions, from next year onwards, Zakri says that intermediaries still have a role to play in the life insurance space, as unlike general insurance, contracts of the former are more complex. “The regulator’s point of view is that customers should be given choices, but they are likely for simpler products,“he reckons.
A bright spot in the life insurance market is bancassurance. RHB Research says that due to ALIM’s tie-up with Hong Kong and Shanghai Banking Corp, bancassurance products contributed 9% of the ANP mix in the first half of the year from 1% two years ago.
As for expansion into the takaful market, Zakri says it has to fit into the company’s overall strategy. “While we remain open to mergers and acquisitions, there are no plans of this right now.”
Zakri, though, has his role cut out to ensure that Allianz Malaysia measures up to at least its past performance.
The unconventional 50-year-old chief executive has been with the company for the past 13 years, rising up the ranks, with his previous posting being the head of Allianz General Insurance Company (M) Bhd. He describes himself as “not your everyday CEO”.