We all knew the story where Air Asia disrupted air travel with cheap tickets and it seems though Tune Protect Group (TPG) might be heading the same way. TPG noted in Q4 2016’s press release that they are moving forward into digital insurance which is pretty revolutionary in my view.
Insurance had always been a product that was sold by an agent. The requirement of a proper explanation on coverage provided and deciphering policies with thousands of words was best to be done by someone familiar and someone you trust. But what if we could simplify all these by removing the middle-men? Cost would be lowered and premiums could be lower as well benefiting both parties.
TPG is slowly moving and trying to penetrate the life and medical insurance segment of the industry. Take a look at their website, you could see Tune Protect PA Easy which is somewhat a mix between medical and life insurance with less coverage but less fussy towards the insured person.
As we said earlier, online insurance could reduce the price of premiums. Paying a premium at only RM36 a year, the coverage isn’t that comprehensive but satisfactory since the annual premium payment is so low. Just look at the benefits that you are getting!
We estimate that TPG’s revenue would see a larger contribution from non-travel insurance in the future when the public is made aware of their product offering. In the smartphone era, everything is just a tap away and I don’t see why people wouldn’t choose the easy option of tapping on the insurance purchase. The fact that the price per coverage is merely a set of meal for two makes it easier to be purchased online.
Why is The Stock Trading Weak Against Air Asia?
Posted on The Edge December last year entitled “Challenging year ahead for Tune Protect”, the article address the current issue that Tune Protect faces such as travelers no longer buying insurance when they fly especially when one is cash strapped choosing to fly a budget airline instead. TPG found out that many forgo travel insurance when times are bad which is totally sane since insurance purchases had always been associated with the availability of disposable income for someone.
To address this issue, Air Asia ticket booking facility revamp their business to accommodate bundling option for insurance, baggage and meals with the ticket. Obviously, the revenue from bundling isn’t that high compared to customers opting to buy the insurance option but the outcome remains favorable compared to zero revenue when one flies.
If bundling works then we should see revenue returning for TPG which is crucial since travel demand is at all time high and projected to only grow upwards with a prospering economy round the world. South East Asia region wouldn’t be left out when demand rises entirely due to tourism interest.
Tune Protect Group against other Insurers?
Straight off comparison, we have TPG trading at roughly the same price to earnings ratio against it peers. TPG produces high double digit margins for its business as well in the list above. We could say that Manulife is trading cheaper but underwriting a huge sum of premiums still doesn’t bring in a lot of profit for the company. Most life and medical insurers have thin margins since the requirement of a sales representative to sell lowers margin since they get quite a big cut from policies sold.
Believing that digital is the way moving forward, we shall see TPG maintaining margins in the future. This equals higher earnings when revenue rises when business starts coming in.
We think that it is best to collect this counter when structural problems like these hits. Believing that corporate would sort things out is the key to feel comfortable buying into a company which is having a major problem.
At the moment, the biggest risk comes from both directors Tan Sri Tony Fernandes and Datuk Kamarudin Meranun where they are shuffling about the structure of Air Asia as a group. We aren’t quite sure what the final decision would be or how the group as a whole would end up.
Another problem that is currently bugging the company is the case where Tune is facing a penalty of RM3.6M (announcement). But Tune isn’t the only insurance facing a price fixing charge but notable insurers such as AIG, Allianz , Berjaya along with 20 others are facing similar issue. The investigation is on-going and we believe that it is still too early to make a call on what would happen to all those insurers whose name was called upon.