Insurance, takaful to remain healthy in the long term

KUCHING: Analysts are positive on the long-term prospects of the insurance and takaful industry as its foundational is supported by strong capital position and sound profitability.

In a report, the research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research) said, based on the Bank Negara Malaysia’s ( BNM) mid-year performance report, the foundational structure of insurance and takaful industry continued to remain healthy, supported by strong capital position and sound profitability.

In terms of new business, it pointed out that life insurers and family takaful operators recorded a higher growth in premium at 7.7 per cent y- o-y in the first half of 2018 (six per cent y- o-y in 1H17).

This is driven by the rise in credit-related insurance and takaful products such as Mortgage Reducing Term Assurance and Takaful insurance policies, on the back of higher housing loans disbursed.

“We are positive on the trajectory charted by life insurers and family takaful operators, in which new business premium continued to be uplifted by the resilient demand of life policies among domestic households. Moving forward, we expect wide headroom for further growth to remain due to the low penetration rate of insurance policies in Malaysia,” MIDF Research opined.

In the same period, the research team is encouraged to see more new protection term products being distributed through direct channels, growing faster at 12.3 per cent y- o-y (compared with 9.8 per cent y- o-y in 1H17).

“While the introduction of direct channel was recently regulated in July 2017, this signalled a more meaningful progress for the sector given the lingering challenges in reaching wider and underserved domestic market,” it added, noting that direct distribution channels refer to distribution of products through the head office and branch premises, or an online platform.

In the general segment, it pointed out that medical and health segments has grown its gross direct premium by nine per cent y- o-y in 1H18, owing to the rising demand for group medical policies.

“Moving forward, we expect the continuous increase in medical and healthcare costs will continue to fuel the demand in the longterm,” it viewed.

It also pointed out that Malaysia’s medical and healthcare inflation is the highest in the region, growing by 11.5 and 12.7 per cent y- o-y, in 2016 and 2017 respectively.

“At this juncture, we believe it is important to point out that government is already mulling on the possibility of raising consultation fees for medical practitioners. This will be applicable to private clinics and hospital with new charges ranging from RM30 to RM125.

“Assuming this will go through, we will not be surprised to see the demand for medical insurance policies to rise, hence benefiting the sector,” it added.

On the off- shore oil related business, MIDF Research said while the segment only accounted for less than five per cent of total gross direct premiums, it believed that there is a potential uptick in growth.

“This is stemming from the recovery of global oil price, which has posted year to date ( YTD) average growth of 25.05 per cent y- o-y,” it added.