New chapter in insurance sector’s transformation
KUALA LUMPUR: Malaysia’s insurance industry wrote itself a new chapter in its transformation journey with the introduction of the first phase of liberalisation of motor and fire insurance tariffs on July 1.
The detariffication exercise was finally put into action after discussions between industry players and Bank Negara Malaysia was initiated in 2013.
With the first phase of detariffication, insurers are allowed to adopt risk-based pricing on its products, for which premiums would be priced according to differentiated risk profiles of consumers.
The General Insurance Association of Malaysia (PIAM) said progress would be reviewed in 2019 before full liberalisation.
Despite competition being expected to intensify following the tariff liberalisation, analysts, however opined, a price war is unlikely.
“This is because the pricing of insurance products is still required to fall within the risk-based capital framework issued by Bank Negara,” said MIDF Research in a note.
It also reminded insurers to invest in technology to build sophisticated pricing mechanisms and improve operational capabilities.
“Otherwise, those lacking in capital to invest towards improving their pricing models are likely to be adversely impacted by under-pricing for risk of insurance policies underwritten,” MIDF added.
According to the Finance Ministry’s Economic Report 2016/2017, gross direct premiums of the general insurance sector for the January-July period edged up 0.8 per cent yearon-year to RM10.7 billion.
“However, growth in gross direct premiums for the motor segment was flat at 0.3 per cent due to lower sales for passenger and commercial vehicles,” it highlighted.
PIAM, which has 28 general insurance members, had on its part, warned that the operating environment for the second half of the year would be challenging.
Transformation also prevailed in the life insurance segment, following the introduction of Malaysia’s first online term insurance platform in November last year.
For now, Malaysians are able to purchase basic term-life insurance via U For Life, the first online term insurance platform in the country.
“With affordable premiums from as low as RM9.85 a month, which is less than a cup of ‘teh tarik’ a day, Malaysians can now be covered by the basic term-life insurance,” said U For Life founder Ravinder Singh.
The online platform is one of the direct channels specified by Bank Negara under the Life Insurance and Family Takaful Framework (Life Framework) to promote innovation and a more competitive market.
Under the framework, introduced in November 2013, the central bank requires all life insurers or family takaful operators to offer commission-free standalone pure protection products. These are term, critical illness and medical and health insurance/takaful through at least one direct channel, such as via an online platform or direct counter, from January 1 next year.
“The move is expected to contribute towards increasing the insurance and takaful penetration rate to 75 per cent by 2020 as targeted under the Economic Transformation Programme,” said Life Insurance Association of Malaysia (LIAM) president Toi See Jong.
Moving forward, Toi said LIAM would remain focused on achieving the targeted penetration rate and continue efforts at calling for separate tax relief for the Employees Provident Fund (EPF) contribution and life insurance premiums.
He said only a combined RM6,000 tax relief on the EPF and life insurance premium, was given to taxpayers.
The Economic Report indicated that the market penetration rate of life insurance from January to July this year stood at 40.1 per cent, compared with 40.8 per cent in the same period last year.
It said new business premiums grew 5.9 per cent to RM5.5 billion during the period, mainly supported by growth of non-participating life policies and annuities.
However, new business premiums for investment-linked policies declined 5.1 per cent due to heightened domestic financial market volatility since last year.
For the takaful industry, two policy documents on Internal Capital Adequacy Assessment Process for takaful operators and stress testing were issued in April and June, respectively, to strengthen capital adequacy assessment and risk management.
The industry is expected to be on track to reshape itself with dual licensing requirements under the Islamic Financial Services Act 2013, of which the composite Islamic insurers are required to split their family and general takaful businesses under two separate licences by July 2018.
“The takaful sector is likely to sustain its double-digit growth this year and next on the back of an expansion in policies,” said Malaysian Insurance Institute chief executive officer Datuk Syed Moheeb Syed Kamarulzaman.
“It has remained ahead of Malaysia’s gross domestic product.”
The Economic Report also said the new family takaful businesses grew 7.4 per cent with gross direct contributions of RM2.3 billion from January to July from RM2.1 billion in the same period last year.
“For the same period, general takaful businesses also expanded further, with gross direct contributions of RM1.42 billion, up from RM1.40 billion previously,” it added.
With the transformation and innovative initiatives that took place within it this year, Malaysia’s insurance industry is poised to embrace a brighter outlook in the new year. Bernama