Revisions to the BNM’s Risk-Based Capital (“RBC”) Framework – The revisions were made in May 2011. It is meant to converge the valuation rules under
pinning the determination of regulatory capital with the Financial Reporting Standards. Further
enhancements are being made to the RBC framework. Amongst the areas are: (a) Refinement of valuation
methodology for life insurance liabilities and reinsurance arrangements; (b) Ensure consistency between current capital buffers provided under the RBC framework and (c) Implementation of more robust internal capital management processes for insurers.
A new risk-based capital framework for takaful operators – It will be effective from 1 January 2014. BNM issued guidelines on an internal adequacy
assessment process (“ICAAP”) for conventional insurers – It is effective from 1 September 2012. The Competition Act 2010 – This is effective on
1 January 2012 and it introduced a new motor cover framework addressing pricing distortions and inefficiencies in the claims settlement process. It allows for gradual adjustments to the premium levels and will be phased in over a four-year period. Personal Data Protection Act, 2010 – The Act is
expected to be implemented in 2013 and could pose significant challenge in the availability of customer data for cross-selling purpose in the direct
marketing/telemarketing business.
Splitting of composite license into non-life/general takaful and life/family takaful businesses within a 5 year grace period – This is based on recent regulatory/industry developments. There are
potential merger and acquisition opportunities when the shareholders of existing composite licensed operators potentially seek to dispose either licenses or a tie-up with a strategic partner.
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Future outlook
General Insurance Life Insurance Takaful
The outlook is positive based on the following factors:
Malaysia’s GDP growth is expected to grow 5% to 6% – The expansion of the Malaysian general insurance segment is correlated closely to GDP and
disposable income. The main growth areas are expected to be from the services and manufacturing sectors. It is expected the gross premium income will increase to RM17.5b by 2015. Positive impact of government
economic policies – Government initiatives like the Employee Insurance Scheme, Private Pension Scheme and the Foreign Workers Health Insurance Scheme will incentivise players to develop new product offerings and increase the depth in the market. In addition, introduction of the 1Malaysia Micro Protection Plan will not only provide insurance coverage to small businesses enterprises but also raises the penetration rate of insurance in Malaysia.
Bright outlook for motor insurance players – Motor premium revenue will continue its growth given the premium tariffs are being revised (for the first time in 30 years) gradually over 4 years, and insurers are now adopting
premium loading on older cars and commercial vehicles. In addition, better profitability from this segment is expected as the industry offloads the unfavourable motor risks to Malaysian Motor Insurance Pool.
Growth in medical and personal accident insurance is expected to be fastest – This is in line with greater public awareness and higher disposable income.
Rates stabilisation for the large and specialised risks (“LSR”) and project engineering category – However the segment is expected to benefit from government’s mega infrastructure projects.
The number of general insurers is expected reduce gradually as the industry consolidates further.
The outlook is positive based on the following factors:
Malaysia’s GDP growth is
expected to grow 5% to 6% – Total life new business premiums are expected to grow 7% to 10%. Positive impact of government
economic policies – The introduction of the Financial Sector Blueprint (2011 – 2020) by BNM which focuses on retirement planning and healthcare solutions coupled with tax incentives are for private pension plans is likely to accelerate development of the private pension market in Malaysia. Life insurers are provided the opportunity to play a key role in this segment by introducing new products like annuity plans for retirement needs.
Vast untapped market with the current low market penetration of 43% – This segment will benefit from the rising per capita income of the population and new and innovative products introduced by insurance companies.
Escalating costs of medical and healthcare services – This spurs the growth in health and medical products as public becomes more aware and realise the benefits of life insurance products. This encourages people to purchase additional life insurance policies for their post-retirement period. Current low interest rate
environment – It makes purchases of life insurance products attractive as it carries relatively high yield and yet stable returns.
The outlook is expected to be positive based on the following factors similar to the conventional general and life insurance industry.
The outlook for takaful business is expected to be good given
Malaysia’s predominant Muslim population and its penetration rate at a mere 10% compared to the conventional at 43%. The takaful business is also
witnessing strong growth momentum. A growth of 15% to 20% is expected for the family takaful but a growth of 10% to 12% is expected for the general takaful segment.
Positive impact of government economic policies – The government is very keen in developing the Takaful market in Malaysia. A number of Takaful related initiatives have been enshrined in the introduction of the Financial Sector Blueprint (2011 – 2020) by BNM. Some of the recommendations are:
- Issue of new takaful licences to institutions with specialised expertise.
- Promote the use of takaful and risk management tool in Islamic finance transactions. - Encourage greater
involvement of takaful brokers to broaden the range of takaful product offerings and outreach by extending Malaysia
International Islamic Finance Centre (“MIFC”) incentives. - Facilitate greater injection of
foreign expertise in takaful broking and loss adjusting industries to better support takaful business.
- Encourage international players to establish retakaful operations in Malaysia.
Key players and competition
Competitive environment
The Malaysian insurance market comprises 57 insurers and takaful operators as of 31 December 2012, of which 9 write life business only, 19 write general business only, 6 composite insurers, 7 reinsurers, 12 takaful operators and 4 retakaful operators.
The offshore insurance market comprises 4 life insurers, 9 general insurers, 2 composite insurers, 38 captive insurers, 39 reinsurers and 74 insurance brokers as of 27 December 2012.
General Insurance Life Insurance Takaful
The general insurance industry is still relatively overcrowded, with the top 10 of the 25 insurers commanding 65% of the market share in gross premiums in 2011, many of whom are primarily motor insurance
companies.
Other than the overcrowded market, this sector is less attractive due to the lower underwriting margins,
especially in the dominant motor insurance class. However, there are opportunities in personal line classes such as personal accident and medical/health, and niche sectors such as marine cargo.
Consistent with BNM’s vision of consolidating the conventional insurance industry, the number of general insurance players has gradually reduced over the last decade, and further consolidation is expected in the near future. This is encouraged and achieved via a combination of incentives such as tax and stamp duty exemptions,
regulatory measures such as increased capital requirements and the cessation of issuance of new licences.
The life insurance sector is considered to have high level of concentration as it is currently dominated by a few key players, most of whom are household names regionally/globally. The top 5 of the 15 life insurers commanded a market share of 71% in terms of gross premiums in 2011.
The key players are comparatively better resourced and well-marketed compared to the medium/small insurance players who continue to struggle to grow their new business.
The takaful industry is growing, and currently, it is dominated by the pioneer takaful operators namely Syarikat Takaful Malaysia Berhad and Etiqa Takaful Berhad which commanded a market share of 60% in terms of gross contributions in 2011.
As part of the Government and BNM’s initiative to develop Malaysia as a leader in the takaful market, 4 new takaful licences were issued in 2011 to attract leading global players to establish a presence in Malaysia by partnering Malaysian companies. These 4 new takaful operators are AIA AFG Takaful Bhd, AmFamily Takaful Berhad, Great Eastern Takaful Sdn Bhd and ING PUBLIC Takaful Ehsan Berhad.
There is intense competition to the conventional insurance players with the introduction of takaful operators, which meets the prevailing needs of the Muslim population for a Shariah- compliant takaful products.
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