• Regulatory reforms to support insurance industry
On the outlook of the overall insurance industry for 2017, RAM Ratings maintained its stable outlook on the Malaysian insurance and takaful sector in 2017, which is supported by the industry’s strong capital levels and regulatory reforms which augur well for the sector’s development.
Amid expectations of a delicate economic recovery, general insurance gross premiums growth is anticipated to stay below two per cent in 2017.
Market conditions were challenging for general insurers and takaful operators in 2016. It noted that gross premiums in the general insurance segment grew a marginal 0.9 per cent (compared with 2.5 per cent in 2015) to RM17.2 billion due to weaker growth in the motor and fire lines of business – segments which collectively represent more than 60 per cent of the sector’s premiums.
Similarly, it noted that the general takaful gross contributions expanded at a slower rate of 4.7 per cent (compared with six per cent in 2015) to RM2.4 billion.
However, it pointed out that topline growth moderation, the profitability of the general insurance and general takaful sectors strengthened to RM3.4 billion ( compared with RM2.8 billion in 2015) on account of better claims experience.
“Looking ahead, tariff liberalisation initiatives in respect of motor and fire products may result in some initial price undercutting, but will spur an improvement in product innovation and risk selection criteria of general insurers and takaful operators,” the ratings agency said.
Similarly, Lim expected that the general insurance sector will continue its moderate growth pace. However, he also believed that the introduction of new products and increased options would lead to better insurance take up rates.
“We foresee more new products to be introduced and increased choices would result in better take up rates.
“Higher growth rates may be seen in the non-motor portfolios like fire and medical and health insurance.
“This will be supported by wider distribution channels and increased demand for medical and health insurance owing to changes in demographics and an ageing population.
“Moving forward, PIAM expects a low growth rate given the ongoing uncertainties in the external environment,” Lim said.
Meanwhile, for the life insurance segment, RAM Ratings believed that subdued consumer sentiment and inflationary pressures will slow the pace of life insurance (LI) gross premiums growth to about five per cent this year.
“We expect the takaful sector’s growth trajectory to remain higher than that of its conventional counterpart, underpinned by growth in the family takaful (FT) segment. The FT penetration rate is substantially lower (15 per cent of the population) relative to life insurance’s 41 per cent.
“On the LI and FT front, regulatory measures to promote greater operational efficiency and increase the focus on direct commission-free distribution channels will lead to more affordable product offerings. These will help address the protection gap in Malaysia and steer the sector towards the target penetration rate of 75 per cent.”
Overall, regulatory reforms are expected to support the industry’s growth prospects, which remain favourable, despite some near-term moderation.