Malaysia’s takaful industry has continued to grow at a slow and steady pace, and efforts are being made to increase takaful penetration within the community. The Malaysian Takaful Association’s Muhammad Fikri Mohamad Rawi gave Asia Insurance Review some insights.
The Malaysian takaful industry continued its upward trajectory in 2018 with more Malaysians subscribing to the tune of MYR324.2bn ($77.32bn) in new takaful protection value, representing a 14.5% increase from 2017 (see table 1).
“The buoyant performance of the takaful industry reflects the increasing familiarity with the takaful concept among Malaysians, evidenced by greater acceptance of takaful coverage as the choice for protection,” said Malaysian Takaful Association chairman Muhammad Fikri Mohamad Rawi.
The general takaful industry registered growth of 8.9% with gross contributions totalling MYR2.79bn compared to MYR2.56bn in 2017 (see table 2). Motor takaful remained the largest class of business with a portfolio mix of 62.3% followed by fire at 20.1% and other classes at 17.2%.
The growth of motor takaful despite the implementation of the phased liberalisation of motor and fire tariff impacting the sector is attributed to strong car sales performance.
In terms of claims paid, the net claims incurred ratio (NCIR) decreased slightly to 51% from 51.1%. For motor, the industry’s NCIR increased to 66.5% from 63.5% over the same period in 2017.
Motor takaful claims paid out by insurers amounted to MYR0.89bn in 2018, averaging out to MYR2.4m per day in claims for property damage (own vehicle, other party’s vehicle), bodily injury and vehicle theft. This was higher than the MYR2.3m per day recorded in 2017.
Challenges
According to Mr Fikri, a paramount issue that has plagued the takaful industry from the very beginning has been the unfamiliarity and extremely low awareness of the concept of financial protection among Muslims, who make up the bulk of Malaysia’s population.
Efforts and initiatives to educate the public about takaful have made little headway based on the penetration rate which has remained at 13% to 15.2% over the last five years.
“There is, however, an indication that the industry’s long term strategy to target Gen Y and Gen Z is bearing fruit as greater awareness of the later generations on the need for protection and takaful has enabled the industry to cushion the natural impact of the ageing population,” he said.
“In fact, the new inforce certificate numbers indicate that, as millennials come of age, their views of protection are markedly different from their parents.”
Just like any other sector related to life and health, the takaful industry has also been affected by what the MTA describes as ‘runaway medical costs’ which have driven up the price of popular takaful medical protection products.
Coupled with the fact that people are living longer, the spiralling healthcare costs pose a considerable challenge to takaful profitability.
He said that the industry has taken steps to tighten up its underwriting and claims process. It has also launched several campaigns and initiatives to promote a healthy lifestyle to takaful certificate holders which could reduce the need for healthcare.
Changing with regulation
“The evolution of the takaful industry in recent years has been closely aligned with the need to conform to regulatory guidelines issued by the Bank Negara Malaysia (BNM),” said Mr Fikri.
BNM’s phased liberalisation of motor and fire tariff policy document that came into effect in 2017 has dictated major changes in the underwriting of two major classes that constitute 70% of overall general takaful business.
Regulatory requirements on ride sharing services also present a new challenge to general takaful operators having had to underwrite a totally new sector of motor business.
“The industry can expect a further refinement of motor and fire takaful pricing in the coming period that ultimately will benefit the consumer at large,” he said.
More recently, the issuance of the new Takaful Operators Framework (TOF) by BNM in June this year has heralded a new environment of a more definitive description of parameters that govern operational requirements of a takaful company.
“Although it is not expected to be a disruptive factor, members of the industry may have to review its operational practices to ensure compliance with the new TOF,” he said.
A view to the future
Looking ahead, MTA hopes to be able to raise awareness and understanding of takaful and the benefits it could bring to all Malaysians.
“The overall penetration rate of 15.2% achieved in 2018 tells of unsatisfactory reach to the masses,” said Mr Fikri. “Employment of a new distribution strategy, affordable and quality new products, improvement of deliveries and claims services are the focus of the industry.”
According to the BNM’s Financial Stability and Payments Report 2016, even among the insured population, there is an estimated average protection gap of MYR553,000 to MYR723,000 per family, which is the amount needed for them to maintain their existing standard of living if a primary wage earner should pass away.
MTA intends to be an active participant of the National Strategy for Financial Literacy 2019 – 2023, recently launched by the prime minister, which has set out to equip Malaysians with the knowledge to make informed financial decisions and nurture healthy attitudes to financial management.
“The initiatives [of the strategy] are consistent with MTA objectives and the industry will be committed to support the agenda,” he said. A