Considered underdeveloped relative to other sectors of the economy, Malaysia's insurance sector is poised for growth. With rising consumer awareness, a strong performing economy, the introduction of new and sophisticated products, and regulations and market forces that are encouraging consolidation and greater discipline in the sector, industry players are optimistic.
Currently, market penetration for insurance products in Malaysia stands at 40%. Factoring in multiple policy holdings, the proportion of the population with insurance cover of one kind or another is closer to 30%, indicating tremendous growth potential.
With Malaysia's GDP of $313.8bn forecast to grow 5.5% over the next few years, participants are confident the uptake of insurance annually will expand. That said, industry insiders agree that consumer awareness of the need for such products is quite low and more needs to be done to develop insurance literacy and convince the wider population of the benefits of insurance cover.
Mohd Tarmidzi Ahmad Nordin, CEO of Takaful Nasional, a leading provider of takaful, Islamic-compliant insurance, told OBG, "In the old days, if something bad happened to someone, the community around would take care of them. Nowadays, people are beginning to realise they have to protect themselves."
While Malaysia has a 60% Muslim population, takaful accounts for only about 6% of the total insurance market. Although takaful insurance has had a growth rate of 24% over the past year, the numbers can be deceiving. The money spent on conventional insurance is increasing at a higher actual level than money spent on takaful.
The Life Insurance Association of Malaysia (LIAM) and the General Insurance Association of Malaysia (PIAM) are working to establish industry wide standards and greater consumer awareness.
One key challenge facing the sector is the development of human capital. Overall, agents are said to be short on knowledge and expertise, especially as the products become more advanced and sophisticated. This is coupled by an ageing workforce, few new entrants into the profession, and difficulties in retaining skilled workers who are lured away by higher salaries in other parts of the region such as Singapore. LIAM and PIAM are working to ensure a more professional workforce by imposing mandatory training and advocating more stringent standards and educational guidelines for member companies if they are to be awarded licences.
Kong Shu Yin, CEO of Kurnia Insurans, Malaysia's largest general insurance provider, told OBG, "PIAM is doing its job to promote market discipline through registration and continuing professional development of insurance agents."
While industry players agree that human capital is a challenge, the advent of financial planners, a profession that is being actively encouraged, is being widely welcomed. Zainal Abidin Mohd Noor, CEO of Malaysia National Insurance (MNI), the country's largest composite insurer, told OBG, "I am excited about financial planners. While Malaysia is coming out with more relevant products, we still need to educate the public about the benefits and convey that insurance is not just about savings. Financial planners can persuade and advise their clients accordingly."
Additionally, the central bank, which regulates the insurance market, is working to advance the sector by moving towards more de-regulation and free market principles.
Also benefiting the sector is the arrival of more foreign participants. In late 2006, Bank Negara relaxed restrictions on foreign participation in the industry, and a large proportion of life insurance companies are now part owned by foreigners. Zainal Abidin told OBG, "Foreigners are advancing the sector by bringing in international best practices." Major international players active in Malaysia include the UK's Aviva and Prudential, Germany's Allianz, the US's American International Group (AIG), Canada's Manulife and Japan's Mitsui Sumitomo Insurance.
Another challenge facing the sector is that with 42 insurers, it is considered too fragmented for a population of 27m. Major mergers and acquisitions (M&A) are taking place, with Allianz Malaysia announced on July 11 that it is acquiring total ownership of Commerce Assurance to expand its customer base and expand its retail business. In 2005, MNI and Takaful Nasional were absorbed into Maybank, the country's largest bank, and at the end of this year, will be restructured along with Maybank Insurance into one entity. As Zainal Abidin told OBG when discussing the upcoming deal, "The business benefits gained from such a merger are significant. You get access to more distribution channels, cross sell potential and bundling of products, as well as cost effectiveness through backroom and support centralisation."
While the business benefits from M&A activity are encouraging companies to join forces, another impetus for consolidation has been a central bank announcement towards an increase in risk-based capital requirements (RBC) in 2009. These will require insurers to meet minimum capital adequacy levels and stricter statutory reporting standards. A number of the smaller, poorer performing insurers are not expected to meet these higher requirements, and will be forced to close operations. Kong told OBG, "This is a good thing. RBC will bring in more discipline and prevent companies from executing loss leadership strategies."
