With the economy expected to post solid growth this year, combined with a series of reforms being enacted to further open up the sector, Malaysia's insurance industry is expected to perform well in 2010.
Last year, the government announced a series of reforms to the insurance sector, part of a far wider overhaul of the finance industry that Prime Minister Najib Razak said were aimed at ensuring Malaysia could provide international-standard, high-value-added financial products and services at competitive prices; and accelerate the growth of new economic sectors. Among the reforms announced in April was increasing the ceiling for foreign equity participation in investment banks, conventional and Islamic insurers from 49% to 70%.
According to Loke Kah Meng, the chief executive officer of AXA Affin Life Insurance, the reforms will help boost activity in the sector.
"Given a more liberalised insurance sector, Malaysia's life industry premium is expected to continue to expand in 2010 by about 10%," he told local media on January 13. "With a penetration rate of only 41% backed by additional disposable income, economic recovery, possible structural change in the insurance operating environment and a growing pensionable population, there is ample room for industry growth."
The package of reforms also included the removal of restrictions on the establishment of branches and bancassurance tie-ups. There have been some drawbacks associated with the reforms, along with the improvements liberalisation has brought, according to Alexander Ankel, the chief executive officer of Allianz Malaysia.
"Before any local insurance company could enter into multiple bank relations, as a foreign company, you could only enter into one," he told OBG. "Now, with the new liberalisation measures it is a level playing field, insurance companies can work with as many banks as they want, but also banks can work with as many insurance companies as they want. So it is a double-edged sword."
One segment of the Malaysian insurance industry that is expected to expand is takaful, sharia-compliant services. At present, there are eight takaful insurers operating in the Malaysian market, though this is set to increase this year under the reforms, with a further two licences to be issued in 2010.
The new entrants to the market may provide a further stimulus to the takaful segment, which has been far slower to take off than other parts of the Islamic finance sector, according to data released by OCBC Al Amin Bank, the Islamic banking subsidiary of the Singapore bank OCBC's Malaysian unit.
Though sharia banking accounts for just under 20% of the total banking sector in Malaysia, less than 8% of the local insurance industry's assets are represented by the takaful segment, Syed Abdull Aziz Syed Kechik, the chief executive officer of OCBC Al Amin Bank, told the Reuters news agency in mid-January.
This slow pace of development is due to the limited investment opportunities currently open to companies offering takaful services compared to those available to conventional insurers, he said.
"Takaful has not been growing as fast as Islamic banking over the last 10 years," said Syed Abdull. “In order to motivate the industry, the asset classes of the reinvestment opportunities have got to be enhanced. The development of products has been very, very slow and the reasons for that is the difficulty in harmonising or standardising the sharia interpretation for products."
Dato Aminuddin Md Desa, the chief executive officer of Etiqa Takaful, believes that the sector is being held back due to a lack of penetration, with just 30,000 takaful agents currently operating compared to 160,000 selling conventional products. Despite this limited take up, the potential for growth is there, Aminuddin told OBG, with Etiqa having increased its takaful sales by 40% in the past financial year.
"The new takaful licences granted is a positive step for the industry as this should help develop the agency network further and help push takaful products deeper into the market," he said.
Though final figures have yet to be released, the government believes the economy may have edged out of recession in the last quarter of 2009, and is expecting this momentum to be carried through 2010, predicting growth of 3% or more. With the expected increase in automotive sales, trade activity and more citizens looking to invest in long-term financial products like insurance, the sector could be in for a premium year.
