Insurance, takaful on strong growth trend into 2019
KUALA LUMPUR: The insurance and takaful industry is on a strong growth momentum, while premium income is also expected to continue on an upward trend.
The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) expected the strong demand in the insurance industry is expected to continue into next year, as the insurance sector’s contribution to growth domestic product (in absolute terms) grew the highest amongst other services for the first three quarters in current year 2018 (CY18).
MIDF Research noted that it increased by 9.8 per cent year on year (y-o-y), 13.1 per cent y-o-y and 13 per cent y-o-y respectively.
“Given the stagnant penetration rate (circa 54 to 55 per cent) of the past five years and huge protection gap, we view there will be an opportunity for growth in financial year 2019 (FY19) as the Malaysian government has announced multiple incentives moving forward, with the growth of takaful market as a key catalyst,” the research arm said.
“We also anticipate the insurance and takaful combined assets to continue to climb higher by 6.3 per cent y-o-y to RM313 billion, signaling continuous strength of the industry.”
On premium income, MIDF Research expected this to continue its upward trend according to the prevailing growth trend and favorable market environment of the industry.
“We expect the total net premium and contribution income to increase by around 5.1 per cent y-o-y to higher level at circa RM62.2 billion,” it said.
This is premised on the higher growth of premium in new business by life insurers and family takaful operators at 7.7 per cent y-o-y in the first half of 2018 (1H18) and also a five-year compound annual growth rate (CAGR) of total premium of 5.2 per cent (2012 to 2017), it added.
MIDF Research also opined that the further expansion in the industry to be spurred predominantly through the takaful market, as the yearly growth in contribution income has approximately doubled the premium growth in the conventional market since four years ago.
“Furthermore, we observed that the total premium growth was mostly attributable to the life segments as compared to non-life segments in the past three years, indicating possible increased take-up rate in life protection by consumers.”
As for the liberalisation performance in the general segment, MIDF Research noted that in CY19, BNM will make an official assessment of the phased liberalisation since the full implementation of motor insurance de-tariffication in July 2017.
“Upon which, the results would determine the readiness of the industry to fully adopt a liberalised environment, particularly with fire insurance de-tariffication to be targeted next.
“As the motor and fire insurance form two of the largest lines of business, we see this step-bystep approach as strategic as to ensure the sustainability and competitiveness of the general and takaful insurance industry in the long run.”
MIDF Research believed that insurers with a rigorous and robust risk-based pricing operational model will be better off in taking advantage of the opportunities presented in a more dynamic market, thus resulting in better underwriting profit.
It also expected further liberalisation to be beneficial to both consumers and insurers as more products may be tailored to suit both parties’ needs and profile compared to the fixed price tariff, thus enhancing the efficiency of the industry as a whole.
MIDF Research also touched on the favorable government stimulus for the insurance market, viewing the tax relief of RM3,000 for life insurance and takaful products as an encouraging move to stimulate the take-up rate of insurance products by non-policy holders.