Liberalisation to create new opportunities in Malaysia’s insurance sector

Ongoing reforms in Malaysia’s insurance industry should increase competition and cut premiums costs for consumers, though a f latter economy has seen revenues dip as the market adjusts to a newly liberalised operating environment.

Beginning July 1, the second phase of reforms to gradually ease tariffs in the motor and fire insurance segments came into effect as part of a larger effort to liberalise Malaysia’s insurance market.

The second round of reforms rids the segments of the rigid tariff structure, allowing for insurers to charge premiums aligning with the risk profile of clients. This is particularly applicable in the auto segment, in which underwriters can reward drivers with clean records and protect themselves against clients with a history of accidents or misdemeanours.

The reforms also allow insurers to offer newer features as part of their motor and fire products, building on earlier liberalisation begun in July 2016. At that time, insurers were given authorisation to introduce new products, as well as addon covers at market-driven prices.

Motor and fire represent the two largest segments in Malaysia’s insurance industry, accounting for roughly 45 per cent and 20 per cent of total premiums, respectively, in the first quarter of this year.

While the liberalisation process should boost competition in auto and fire coverage, the potential for growth should offset any falls in premiums, according to Suparno Ahmad, head of takaful (Islamic insurance) operations at Hong Leong MSIG Takaful.

“It is a conservative approach by the regulator, so we don’t expect price movements of more than 10 per cent in the market,” he told an industry conference in early August.

This steady implementation, Ahmad said, should give insurers the opportunity to rebalance their portfolios in preparation for full market liberalisation in 2019.

The industry – composed of both general insurance and takaful players – reported a modest dip in gross written premiums, which fell 1.8 per cent year-on-year to RM5.56 billion (US$1.3 billion) in the first quarter of this year.

This continues a trend of slowing premium expansion in general insurance, which eased from 2.2 per cent in 2015 to 1.1 per cent last year, reaching RM17.67 billion (US$4.1 billion).

This deceleration was partly caused by weaker performance in the Malaysian economy, as well as falls in the maritime, aviation and transit component due to a drop in hull insurance and policies for the oil and gas industry.

Ratings agency S&P rated Malaysia’s life, property and casualty insurance segments as “intermediate risk” in reports issued in July.

The premium growth rate in Malaysia’s life component remains moderate, the report said, due to low interest rates, an early phasing-in of regulatory initiatives and the economic downturn. Despite these factors, however, it said the life segment will continue to be profitable.

For the property and casualty segment – which includes fire and auto – S&P noted that while growth would remain slow due to recent reforms, the overall outlook was bright.

“In our view, Malaysia’s property and casualty industry performance will remain positive compared with that of regional markets,” the report said.

Positive prospects from market liberalisation could see the insurance sector attract more international interest in the coming years.