Since MAS announced that it would be setting up a web aggregator back in 2013, we have been eagerly awaiting for the launch of this portal. For too many years, insurances have been seen as something that requires hard, personal selling. A web aggregator that allows users to compare and select products may soon change this perception.
For those who do not know, MAS announced last week that it will launch a web portal called CompareFIRST. Life insurance companies will also start selling Direct Purchase Insurance (DPI), which refers to a class of simple life insurance products that is sold without commission and financial advice.
The current situation
Insurance is important, yet many Singaporeans are underinsured. For a country facing an ageing population, being under-insured is a huge concern not just for the individuals, but also for the country.
Purchasing an insurance plan to get insured does not take long. It can be done in a short one-hour meeting with an insurance agent. Unfortunately, that’s a meeting that we all too often procrastinate. In fact, Singaporeans sometimes take the “free advice” of insurance agents for granted to the extent that we end up expecting the agent to help us do research that we should have done for ourselves.
Imperfect information is one of the main reasons for the inefficiency in the economy. Imperfect information can take place in a few scenarios.
Consumers do not spend sufficient time researching on a particular product, resulting in having little knowledge prior to the purchasing of a policy.
- Insurance agents
When approached by a consumer who is less versed in the insurance market, insurance agents fail to understand the need of the consumer, prior to the recommendation of a particular insurance policy to the consumer.
This will eventually result in a policy mismatch with the consumer getting a policy that may not suit him entirely.
- Moral Hazards
Consumer having little knowledge of insurance, insurance agent fully understands the needs of his client, but is dishonest in the policies he recommends to his client.
The need for better flow of information
Even if we assume a consumer fully understands his own needs and is fortunate enough to be able to purchase his policy through a trusted agent from a specific insurance company. He is recommended the best match of policy from the wide range of policies of the insurance company that the agent represents.
However, there might be other companies out there providing a more suitable policy at a more affordable premium. The insurance agent will not recommend these policies from the other companies because the agent can only represent his own company.
How web aggregator will change the industry
Starting 7 April 2015, Singaporeans can start purchasing Direct Purchase Insurance (DPI) online.
Aside from CompareFIRST, there are also other aggregators such as DIYInsurance, which is Singapore’s first life comparison portal. All these aggregators have one similar trait, and that is, to be used by consumers for the purpose of learning and comparing various types of products in the market, and the pros and cons of each.
These insurances can be bought without the need for an agent; hence the general understanding is that the premiums are lower. The strange effect that this might have is that it will definitely encourage people to get free advice by talking about products that they might be interested in, and then buy it at a discount directly online. In fact, DIYInsurance has already been giving rebate of 30% of commission back to policyholders.
In this case, a commission based agent may end up spending a lot of time with customers that simply want to seek for free advice before buying it directly themselves.
(Editor’s Note: DIYInsurance is now MoneyOwl. MoneyOwl is Singapore’s 1st Bionic Financial Adviser where human wisdom and technology come together to deliver best-in-class financial advice that integrates national schemes. Visit www.moneyowl.com.sg today.)
How it will improve the industry
It is not all doom and gloom for the industry. A silver lining is the fact that consumers now have the incentive to educate themselves about the basic of insurances. This will mean that low value activities such as comparing products across different companies can be done by the consumers themselves, at the click of the mouse. Agents will talk to more informed clients and will thus have to provide further value add so as to differentiate themselves from online platforms.
As a whole, the standards in the industry will increase. And yes, a better-insured country will ultimately translate into more business for the insurance industry.
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