Ready for the digital insurance game

ON November 25, 2022, Bank Negara finally released the long-awaited draft on Digital Insurers and Takaful Operators (DITOs). This brings the country one step closer to its national goal of becoming a regional leader in the digital economy.

Following the DITO discussion paper published in January 2022, this draft describes the requirements necessary for DITO application.

What does the draft license framework for DITO contain? Similar to the discussion paper, the requirement for DITO applicants to engage in the sustained promotion of value propositions in the following areas remains largely unchanged in the draft:

> Inclusion – Improved financial resilience of consumers whose protection needs are currently either not or not adequately met (unserved or underserved);

> Competition – Innovative insurance/takaful products to meet consumers’ diverse protection needs;

> Efficiency – Convenient and seamless consumer experience with greater cost savings.

What the Exposure Draft includes that is not covered in the Discussion Paper is an in-depth discussion covering the following key areas:

Appropriate business model

There are two types of business models that can operate within this framework, including an underwriter model that assumes full insurance/takaful risk and a risk-sharing protection model.

Intermediaries such as enablers, agents, brokers and senior general agents are worked out from this framework.

Of the two types of models, more attention has been paid to the latter because the variations in the risk-sharing protection model can lead to information asymmetry, which can lead to problems in business conduct.

There are therefore additional requirements for the DITO applicant operating under the risk-sharing model, including effective implementation mechanisms to assess customer suitability and affordability, and effective management of the insurance/takaful risk inherent in the model, among others.

Physical Access Point

A licensed DITO is required to establish a registered office in Malaysia for administrative purposes only and to facilitate communication with Bank Negara and investigations by authorities while conducting end-to-end operations through digital means must.

However, exceptions are granted for the use of limited physical access points in cases where the required digital infrastructures are not available.

distribution channel

Similarly, the products and services may only be distributed through digital channels such as web-based or mobile applications, or through approved advisors, brokers and aggregators or third-party digital platforms.

No distribution may be made through agency or bancassurance/bancatakaful channels that rely on face-to-face or face-to-face interactions. There is also a separate set of requirements governing the offering of embedded protection products that are built into a product’s purchasing process to ensure that no products are mis-sold to customers.

How does it differ from the central bank’s policy document on the licensing framework for digital banks?

In our opinion, the DITO draft has identified key points (which appear to be broadly similar to the requirements in the digital bank licensing framework). They are:

Application for Admission

The due date for applying for the DITO license is six months from the date of the license commencement announcement. In cases where an applicant wishes to operate both general and life/family businesses, they must apply for two DITO licenses.

Thereafter, successful applicants will be notified in writing of the decision. The licensed DITO must undergo an operational readiness test before starting business operations.

Business plan and exit plan

A five year business plan is required. This will demonstrate the feasibility of the business strategies, the ability to deliver compelling value propositions and the appropriate availability of financial management and organizational resources. The applicant must also provide an exit plan for the first five years of its operations, covering operational aspects such as governance policies, technical details of the management information system and detailed information from stakeholders.

Rating Factors of Shareholders

Shareholders play a role in influencing business decisions made by licensed DITOs, they are required to submit shareholder motions along with the license applications.

Shareholders are expected to provide constructive input to the licensed DITO in areas such as risk management and compliance, ability to apply transformative technologies, access to consumer analytics, source of financial strength for the applicant and Shariah expertise for the takaful business application.

start-up phase

A start-up phase serves as a period for the licensed DITO to demonstrate its viability and operational viability, which can range from a minimum of three to up to five years.

During the incorporation phase, the licensed DITO must submit an annual submission on the progress of the implementation of the business plan and a report on the status of compliance with any imposed license and/or participation conditions.

To reduce barriers to entry, the minimum paid-up capital for the incorporation phase is lower (vs. RM100M after incorporation) and is RM40M for one licensed DITO and RM30M for two licensed DITOs within a finance group.

A targeted regulatory adjustment can be applied to licensed DITOs administering a risk-sharing protection model.

Secret Recipe to Win a DITO License – What Can We Learn From the Digital Banking and Digital Insurance Applications Across Asia?

Drawing on the recent digital banking wave in Malaysia and observations from successful digital insurance applicants across Asia, we have identified five critical success factors:

Fulfillment of value propositions

The primary goal of introducing digital players alongside conventional players is a business model powered by the innovative use of technology. The ability to reach the unserved and underserved segments of the market is the key differentiator.

DITO license applicants are encouraged to demonstrate their ability to deliver on the three value propositions above – inclusion, competition, efficiency.

This can be seen in Hong Kong, where several digital insurers offer customized and innovative products, including Bowtie, a life and health insurer that offers coverage without commission and the need for a medical exam; Avo, a general insurer offering coverage for Covid-19-related unemployment, work-from-home health and eWallet; and OneDegree, which offers customizable insurance for digital assets.

Self-sustaining financial ecosystem

A key consideration when awarding the license is the ability of the applicant to implement the proposal.

An existing, functioning business and operating model is an advantage, since applicants can fall back on the readily available infrastructure and distribution channels when introducing digital products and services. They help to support new digital endeavors as an extension of the brand in a timely manner.

In Hong Kong, success is credited to incumbent Blue, an insurance company-turned-digital insurer, offering products at affordable prices without the involvement of intermediaries. This is also evident with digital banking licensees, where non-bank financial services providers are entering the banking industry, backed by their current business operations.

sustainability of the business

Beyond the pure function, the sustainability of the company is another important aspect. In both Malaysia and Singapore, regulators consider the applicant’s financial reputation, track record, strength and shareholder engagement when evaluating applicants.

Interested applicants are therefore advised to demonstrate a sound understanding of key risks in the insurance industry and robustness of regulatory compliance and risk management plans in meeting the regulatory standards of the regulator.

Contribution to the betterment of society

In addition, the growth prospects and the impact of the company on the overall economy are taken into account in the application. For example, the jobs created by DITO, its commitment to developing the skills of the local workforce, the skills (including technology) that will be located in the country, the headquarters functions that it will anchor, and its regional expansion plans.

In the United States, an interesting feature of life insurer Lemonade’s offerings is that unclaimed premiums are donated to customer-chosen charities, which has an impact on wider society.

Growing market share and brand reputation

Finally, market positioning and branding are also important as it represents your market presence and reach.

Leveraging the existing customer base, applicants can further increase their market share by introducing new or complementary products and services to address the needs of the unserved and underserved segments, e.g. B. gig workers.

We have seen in the market that adaptability and extensive technology development has helped FWD Group, a life and non-life insurer, to increase its market share to over 10 million customers in Asia within 10 years of its establishment.


The draft DITO licensing framework shares a number of similarities with the Digital Bank Licensing Framework policy document, such as:

Therefore, much can be learned from the journey of Malaysia’s successful digital banks by referring to the regulatory, technology and financial inclusion perspective and how the banks intend to serve Malaysia’s best interests.

Fulfilling Bank Negara’s long-term aspiration to digitalize the financial services industry, the next likely trend of the digital wave will be the insurance and takaful sectors.

Justin Ong is a leading financial services firm owned by Deloitte Malaysia. The views expressed here are the author’s own.