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The Insurance Landscape in Malaysia

Updated: Jan 22



The insurance landscape in Malaysia is undergoing a significant transformation, driven by economic recovery, regulatory changes, digital innovation, and increased consumer awareness. In this post, we will explore some of the key trends and challenges that are shaping the future of the insurance industry in Malaysia.


Economic recovery and growth potential;

Malaysia's economy rebounded strongly in 2021, growing by 7.6% after contracting by 5.6% in 2020 due to the COVID-19 pandemic. The growth was supported by the easing of lockdown measures, the acceleration of vaccination programs, the implementation of stimulus packages and the recovery of external demand. The economic outlook for 2022 and beyond remains positive, with the International Monetary Fund (IMF) projecting a growth rate of 5.5% for 2022 and 4.5% for 2023.


The economic recovery and growth potential have positive implications for the insurance industry in Malaysia, which is expected to grow at a compound annual growth rate (CAGR) of 8.4% from MYR 73.1 billion ($17.6 billion) in 2021 to MYR 109.6 billion ($26.7 billion) in 2026, in terms of written premium, according to GlobalData. The life insurance and pension segment accounted for 75.8% of written premiums in 2021 and is expected to grow at a CAGR of 9.5% during 2021-26, driven by the popularity of endowment and unit-linked products that offer better returns than bank deposits. The general insurance segment accounted for the remaining 24.2% share of insurance premiums in 2021 and is expected to grow at a CAGR of 4.8% over 2021-26, driven by an increase in vehicle sales and expansion of construction activities in the country.


Regulatory changes and financial inclusion;

The insurance industry in Malaysia is also undergoing one of its most significant transformations, possibly since the early 1990s when the insurance regulatory system in Malaysia was overhauled. Bank Negara Malaysia (BNM), the central bank and the regulator of the insurance industry, has introduced several initiatives to enhance the efficiency, resilience, and competitiveness of the insurance sector, as well as to promote financial inclusion and consumer protection.


One of the key initiatives is the liberalization of motor and fire tariffs, which started in July 2017 and aims to allow insurers to charge premiums based on risk profiles rather than fixed rates. This is expected to encourage innovation, competition, and product differentiation among insurers, as well as to improve affordability and accessibility of insurance products for consumers.


Another key initiative is the Perlindungan Tenang Voucher (PTV) Programme, which was launched in September 2021 and aims to enhance social protection for the lower-income group, especially youth and young families, and the lower 40% income group of households, called B40 group. The program provides vouchers worth MYR50 ($12) each to eligible recipients to purchase Perlindungan Tenang (PT) products, which are basic insurance or takaful products that offer protection against death, fire, or other unfortunate events. The PT products are offered through licensed insurers and takaful operators and are designed to be affordable, accessible, and simple. According to BNM, there were more than 1.3 million PT policies sold as of June 2021, covering more than two million lives.


Digital innovation and consumer awareness;

The insurance industry in Malaysia is also witnessing a rapid digital transformation, driven by technological innovations, changing consumer preferences and expectations, and strategic partnerships. According to a recent nationwide survey by PwC Malaysia in February 2023, more than half of the respondents indicated that they would prefer to purchase insurance or takaful products online or through mobile applications. The survey also revealed that more than two-thirds of the respondents were aware of digital insurance or takaful platforms in Malaysia.


The digital insurance or takaful platforms offer various benefits for both insurers and consumers, such as lower costs, faster processes, wider reach, greater convenience, and enhanced customer experience. Some examples of digital insurance or takaful platforms in Malaysia include Tune Protect EMEIA Bhd., which offers travel insurance products through its website and mobile app; PolicyStreet Sdn Bhd., which operates an online marketplace that aggregates various insurance products from different providers; FWD Takaful Bhd., which offers online takaful products such as family takaful, medical takaful and critical illness takaful; and GrabInsure Sdn Bhd., which leverages the Grab ecosystem to offer microinsurance products such as personal accident insurance and e-hailing insurance .


The digital insurance or takaful platforms also create opportunities for strategic partnerships among insurers, technology companies, e-commerce platforms, banks and other stakeholders, to create a connected ecosystem that can deliver value-added services and solutions for consumers. For instance, PolicyStreet Sdn Bhd. has partnered with Boost, an e-wallet provider, to offer insurance products to Boost users; FWD Takaful Bhd. has partnered with Touch 'n Go eWallet, another e-wallet provider, to offer takaful products to Touch 'n Go eWallet users; and GrabInsure Sdn Bhd. has partnered with Chubb Insurance Malaysia Bhd., an insurer, to offer insurance products to Grab users.


Key challenges and opportunities;

The insurance industry in Malaysia faces several challenges that may hinder its growth and development, such as low penetration rate, high reinsurance outflows, talent shortage, cyber risks and regulatory uncertainties. The life insurance penetration rate in Malaysia has remained stagnant at 55% for the past few years, while the general insurance penetration rate has declined from 1.8% in 2016 to 1.6% in 2020. The reinsurance outflows from the general insurance sector have increased from MYR 5.9 billion ($1.4 billion) in 2016 to MYR 7.5 billion ($1.8 billion) in 2020, indicating a lack of domestic capacity for larger and more specialized risks. The talent shortage in the insurance industry is evident from the high turnover rate of 18.9% in 2020, as well as the low ratio of actuaries per million population of 3.6 in Malaysia compared to 16.9 in Singapore and 19.7 in Hong Kong. Cyber risks are increasing as the insurance industry becomes more digitalized and exposed to cyberattacks, data breaches and privacy violations. The regulatory uncertainties are related to the potential changes in the regulatory framework and requirements for the insurance industry in the future, especially in the areas of capital adequacy, risk management, consumer protection and taxation.


Despite these challenges, the insurance industry in Malaysia also has many opportunities to grow and thrive, such as increasing demand for health insurance, expanding into new segments and markets, leveraging data and analytics, enhancing customer engagement and loyalty, and embracing sustainability and social responsibility. The demand for health insurance is expected to increase as the population ages and becomes more health-conscious, as well as due to the COVID-19 pandemic that has highlighted the importance of health protection. The insurance industry can expand into new segments and markets by offering customized and personalized products that cater to the needs of different customer segments such as women, millennials, gig workers and microenterprises. The insurance industry can leverage data and analytics to improve underwriting, pricing, claims management, fraud detection and customer segmentation. The insurance industry can enhance customer engagement and loyalty by providing value-added services such as wellness programs, financial education, loyalty rewards and gamification. The insurance industry can embrace sustainability and social responsibility by adopting environmental, social and governance (ESG) principles and practices, as well as by supporting social causes such as financial inclusion, disaster relief and community development.


Conclusion

The insurance landscape in Malaysia is transforming rapidly in response to the changing economic, regulatory, technological and consumer dynamics. The insurance industry in Malaysia has many strengths such as a large market size, a high growth potential, a supportive regulator, and a vibrant digital ecosystem. However, it also faces many challenges such as low penetration rate, high reinsurance outflows, talent shortage, cyber risks.

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