THE year 2010 marked the final leg of the Financial Sector Masterplan (FSMP) conceived 10 years ago and liberalisation measures are expected to kick in the insurance industry as well as its Islamic equivalent, the takaful sector in 2011. After all, the Competition Act is expected to be enforced in 2012 – detarification is imminent.
The Malaysian insurance industry is expected to continue its growth momentum – nothing less than a double digit (%) expectation, with the life insurance business projecting a growth by at least 12% in 2011, the non-life (or general) insurance is looking at a projected growth of around 10%, vis-à-vis it may have to struggle a fair bit getting there.
The takaful business is also witnessing strong growth momentum, especially in the family takaful products segment. A growth of between 15% – 20% is expected for the Family Takaful but a growth of between 10% to 12% is expected where general takaful segment is concerned.
In general the main contributing factors that help spur the industry towards those growth expectation or targets are the growing regional economies with Malaysia’s growth rate expected at nothing less than 5% this year and the recent Economic Transformation Programme (ETP) initiatives such as the Employee Insurance Scheme, Private Pension Scheme and the Foreign Workers Health Insurance Scheme.
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With rising medical costs and a slightly uncertain economy expected in the later quarter of this year, products such as health/medical, protection and savings related products would continue to dominate and lead the growth path.
Specifics to the individual sectors….
For Life Insurance, the current low interest rate environment should also spur the population towards increasing their purchases of life insurance products as some of the available life-related products do have reasonable high yield couple with stable and consistent returns.
With the current penetration rate of just 41% (which is relatively lower compared to most developed Asian economies) and increasing average disposable income in hand, the potential for life insurance growth is certain to remain strong – strong in the sense that with new and innovative products being introduced to the markets, this may trigger the public to seriously reconsider life insurance as an alternative, be it for long term investment, balancing protection and saving-yields, or some form of forced but practical savings regime. “The positioning of financial planning and advisory in the minds of consumers certainly helped the industry leap forward over the last 10 years….”
The Life sector has over the last 10 years been positioning itself as a financial planning based industry, and this has been one strategic way towards strengthening its year-on-year growth. Besides educating consumers on the importance of financial planning, the training of agency force and bancassurance personnel would need to be intensified further as the professionalism of financial planners would affect consumers’ ability to trust their advisers when it comes to financial purchases.
The other important area that spurs growth would be protection against escalating costs of medical and health care services, thus innovations into health and medical products and services as a rider to the life products are one sure way to boost sales.
The outlook for the non-life insurance sector is expected to be positive in 2011 with increased demand for general insurance in most segments. The following may be the booster in as far as growth is concerned:
- Motor premium revenue should continue its growth especially where insurers are now adopting premium loading on older cars and commercial vehicles.
- More motor premiums are expected to be generated as the industry offloads the unfavourable motor risks to Malaysian Motor Insurance Pool (MMIP) and since MMIP is imposing a much higher loading factor, premiums across the industry should therefore display an uptrend.
- The compulsory medical insurance plan for foreign workers is certain to boost the Health insurance segments.
- Rates are expected to stabilize for insurance classes involving larger Project-based engineering risks and risks falling within the large & specialized risks (LSR) category, especially where risks having adverse loss development.
- The travellers’ personal accident premiums revenue is also expected to grow and should be even more prominent once the government implements and made this product compulsory for all “outbound” travellers.
- There are also possible new growth areas in micro-insurance, livestock products and even in Credit Insurance.
For the non-life insurance sector to grow by a double digit this year, it is possible given the strong growth rate achieved for the last quarter of 2010. “With its strategic market database, leaders of many treaty programmes and local knowledge, Malaysia Re is expected to play a more prominent role in rates making….. therefore a stabilising force”
The general outlook for the non-life industry is such, premium rates are seen to be hardening….. albeit slightly though. This so-called hardening in rates is becoming more visible with Malaysian Re playing a more prominent underwriting role when risks are escalated for special-acceptance as a treaty requirement or where there are opportunities for them to quote for larger risks that require substantial facultative reinsurance placement. It makes sense for Malaysian Re does have a strategic database of Malaysian risks, which in other words gave them a competitive edge over the other reinsurers.
The outlook for takaful business is expected to be good given Malaysia’s predominant Muslim population and its penetration rate at a mere 7% compared to the conventional at above 40%. We expect a growth of above 10% to 12% for the general takaful and 15% to 20% growth for the family takaful segment.“If RBC is to be implemented, I am afraid the takaful industry would suffer…”
We do not know if the risk-based capital (RBC) is going to be implemented in 2011 but if implementation is as scheduled then 2011 may well be a make-or-break year for some of the takaful players, especially if they are also aggressively involve with general takaful. It is a fact that most general takaful outfits are build along motor portfolio and the fronting of specialised risks. It is also unavoidable that with profit-sharing (among takaful operator and participants) but with the bar on interest-bearing investments, takaful operators are always pressured towards investments that carry a higher risk charge – in any solvency regime with any element of risk-based capital, takaful entities would suffer a higher solvency requirement, other things being equal, than conventional entities.
Takaful operators have always been relying heavily on bancassurance channel for its growth, in which the significant growth in retail credit financing, especially in relation to home financing in 2010 had generated a healthy underwriting portfolio. But this growth may be curbed to some extent in 2011. Thus, takaful operators are encouraged to diversify their business focus to include agency driven products over the middle term. And in this context there should be no difference from their conventional equivalent, that is to formulate marketing plans towards the growth in the personal lines and small-medium entreprise categories.
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