Will Singaporeans start buying insurance online?
In the past few years, online shopping has started becoming mainstream in Singapore. Thanks to websites such as Zalora, Amazon and Rakuten, shopping on e-commerce websites is now common.
If you need a hotel? It is Agoda, not Chan Brothers, which comes to mind. Even the ordering of fast food such as a bucket of chicken from KFC is better being done online, rather than via phone.
The common perception is that shopping online allows one to obtain a cheaper deal. Other benefits include convenience and more selections as well; books on Amazon are a good example.
If food companies, book companies, fashion companies and airlines are all able to penetrate the online market successfully, will insurance companies be next?
Why Not Buy Insurance Online?
To say that insurance companies are not going online is untrue. Travel insurance is a great example of a product that is thriving online. Its success is of course, tagged to the fact that most people book their air tickets via online platforms these days, hence, logically, it is more convenient to buy their travel insurance online as well.
All insurance companies have their own websites. Just like travel insurance, we are pretty sure that insurance companies could make more products available online, if only they choose to do so.
Back in early 2013, we wrote about how the review panel setup by MAS agreed that the current commission based system in the industry creates significant moral hazard issues.
Shortly after, MAS proposed the establishment of a web aggregator to enhance the comparability among life insurance products – you can read our views here). The web aggregator to be developed by MAS is scheduled to be ready in the first quarter of 2015. To date, we have not heard nor seen anything yet.
But we are awaiting it eagerly –to see just how useful it actually is.
Will It Work?
We can’t recall the last time a government initiative actually was a success. More often than not, it is the private sector instead since it is more reactive to the needs and demands of the consumers.
The lucrative profit margin for the insurance industry means that keeping to the status quo would probably be the more desired option. Status quo would imply commission-based incentive for agents, and with that, the pushing of high margin products such as Investment Linked Policies (ILPs), which may not be good for consumers.
However, the government initiative towards building a web aggregator for the Singapore market may open up the market to more privately owned aggregators. One example is Do-It-Your-Way-Insurance (DIY Insurance). The platform allows users to compare insurance products online before deciding on which one they would prefer. There are also useful tools for users to tap on such as how much life coverage one would require. The platform provides rebates of 30% of commission back to the policyholder, which technically mean that it is still a commission-based system.
One strange effect that the DIY platform could encourage is for people to get free advice from agents who are commission based and then to buy it online at a discount. It may not be ethical, but isn’t that what is happening to a lot of other industry as well, where customers window-shop to understand about a product before purchasing it online at a cheaper price.
Is Buying Online Better?
Whether buying insurance online is better depends a lot on the alternatives that each individual have. For example, if the alternative for the individual is spending time and effort doing financial planning with an inexperience agent who is only interested in meeting his or her sales quotas, then yes, purchasing online will be better.
In contrast, if an individual isn’t familiar with financial planning and different types of insurance products but has access to an experience and ethical agent, buying online may not be such a good idea.
Nonetheless, having an online platform for consumers to select would, in our opinion, increase the standards of the industry. For example, if an individual is able to compare quotes between companies without being dependent on the information provided by agents, the agent would then be challenged to provide further value-add so as to differentiate themselves from online providers.
Ultimately, we believe that it is simply a matter of time before the purchase of insurances go online, as with so many other products that have already done so. To us, it is only a question of “when”.
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Image from Sterling Insurance. Used with appreciation.