As the Malaysian insurance industry begins to see financial improvement, Bank Negara continues to enhance customer experience and industry digitalisation with a series of new measures.
Over the past few months, the Malaysian regulator has been hard at work implementing new regulations and frameworks to improve the insurance and takaful industry.
In early July, Bank Negara Malaysia (BNM) issued the ‘Policy Document on Licensing and Regulatory Framework for Digital Insurers and Takaful Operators (DITOs)’.
In line with the ‘Financial Sector Blueprint 2022–2026’, its thrust is to advance the digitalisation of the financial sector. This policy document sets out requirements to facilitate the entry of DITOs that can deliver strong and meaningful value propositions of inclusion, competition and efficiency.
Under the framework, DITOs will observe a foundational phase of between three years and seven years to demonstrate their viability and operational soundness. DITOs will also be accorded a lower minimum paid-up capital during the foundational phase to be more proportionate to DITO’s business operations at their initial stages.
BNM will issue licences to applicants that can successfully demonstrate their capacity and capability to achieve the intended policy outcomes while still preserving a strong focus on risk management and consumer protection.
Focusing on claims settlements
In the same month, BNM issued the ‘Policy Document on Claims Settlement Practices (PD CSP)’ which sets out the minimum standards on the handling and assessment of general insurance and general takaful claims.
These standards must be met by licensed insurers carrying on general business and licensed takaful operators carrying on general takaful business (ITOs) as well as registered adjusters.
The PD CSP aims to ensure fair, transparent and timely outcomes in claims settlement practices through the imposition of regulatory requirements and expectations for ITOs and registered adjusters. This is to observe high standards of sound and responsible business conduct.
Another objective of this policy document is to promote the wider adoption of digital solutions by ITOs to reduce friction, enhance efficiencies, and improve customer experience. This in turn will facilitate better management of claims costs and containment of fraud risks by ITOs. In addition, this will contribute to continued access to affordable motor insurance and takaful by consumers in the long run.
Improving customer experience
Important enhancements to the policy document relating to motor claims, aimed at achieving the desired outcomes and ensuring positive consumer experiences, include the following requirements for ITOs:
- The roles and responsibilities of the board and senior management in claims settlement practices
- The need to publish and prominently display a motor consumer service charter (MCSC) in all of its branches and websites. The MCSC will outline, amongst others, turnaround times consumers can expect for their motor claims and criteria and thresholds for expedited claims, where applicable
- Shortened turnaround time for motor and non-motor claims settlement process
- Enhancing transparency in motor repair estimates by making assessments and recommendations of registered adjusters or in-house assessors accessible to repairers
- Maintaining high standards of professionalism and conduct for its in-house assessors. The ITO must ensure that its in-house assessors are adequately qualified and competent to perform objective assessments of motor claims and receive relevant training to stay updated with the latest technical, technological, environmental and other developments in the motor ecosystem
- Advising policy owners/takaful participants with comprehensive coverage on the benefits and option to submit an own damage knock-for-knock claim to expedite claims processing
- Ensure proper handling and assessment of actual total loss (ATL) and beyond economic repairs (BER) vehicles, including applying ATL and BER as distinguishable terms, consistent with corresponding definitions; and
- Ensure fair treatment of consumers who purchase BER vehicles with respect to access to insurance/takaful coverage.
The PD CSP will take effect on 2 January 2025 except for certain provisions.
Lowering healthcare costs
Finally, BNM will also require ITO to introduce cost-sharing features in their new medical and health insurance and takaful (MHIT) products starting in the third quarter of this year.
Deputy finance minister Lim Hui Ying said this is one of the measures to deal with the sudden increase in premiums or contributions for MHIT products, reported Bernama News Agency.
Ms Lim said that this measure, apart from encouraging more responsible use of healthcare services and lowering costs, could reduce false claims and improve the long-term sustainability of MHIT products.
The central bank has also introduced requirements for ITO companies to ensure that MHIT products remain affordable via the establishment of an integrated claims database.
“This database allows the ITO to compare the charges charged by different private hospitals as well as monitor the inflation of the annual claims of the entire ITO industry,” she said.
Non-life industry expected to rebound
Growth in Malaysia’s general insurance market is expected to rebound in 2024, said data and analytics company GlobalData.
The growth is to be supported by an increase in premium rates across general insurance lines driven by rising claims and high inflation, as well as heightened demand for Nat CAT policies due to an increase in the frequency of extreme weather events.
GlobalData’s insurance database revealed that the general insurance industry in Malaysia is expected to grow by 8.3% in 2024, supported by motor and property insurance lines that are predicted to account for 73% of the direct written premiums (DWP) in 2024.
Looking further ahead, the general insurance industry is set to grow at a CAGR of 7.8% from MYR22.6bn ($5bn) in 2024 to MYR30.5bn in 2028, in terms of DWP, GlobalData forecast.
The Malaysian general insurance industry saw slower growth of 7.5% in 2023 as compared to 10.0% growth in 2022, due to slower economic growth and tight monetary policy.
Breakdown by line of business
Motor insurance is the leading line of business in the Malaysian general insurance industry, estimated to account for a 46.9% share of the general insurance DWP in 2024. Motor insurance is expected to grow by 8.9% in 2024, supported by an increase in vehicle sales.
As per the Malaysian Automotive Association, total vehicle sales reached 202,245 units in the first quarter of 2024, an increase of 5% from 192,615 units during the same period in 2023.
As per the Traffic Investigation and Enforcement Department in Malaysia, traffic accident cases increased by 10% in 2023 to 598,635 cases from 545,588 cases in 2022, and the number of fatalities increased by 104% to 12,417 in 2023 from 6,080 fatalities in 2022.
Property insurance is the second largest line, estimated to account for a 26.4% share of the general insurance DWP in 2024. It is expected to grow by 11.4% in 2024, supported by increased demand for Nat CAT policies. According to PIAM, the recent surge in torrential rain across various states in Malaysia has increased the demand for fire insurance with flood coverage by 33% in the first half of 2023, an increase of 2% as compared to 31% during the same period in 2022.
Rising premium prices due to higher claims and inflation would also support the growth of property insurance. According to the Department of Statistics Malaysia, total losses due to floods increased by 21% in 2023 amounting to MYR755.4m as compared to MYR622.2m in 2022. This is expected to increase the premium rates in 2024 and support property insurance to register a CAGR of 9.8% during 2024-2028.
Personal accident and health (PA&H) insurance is the third largest line, estimated to account for a 10.1% share of general insurance DWP in 2024. This line is expected to grow by 0.3% in 2024, driven by increasing health awareness and medical inflation, leading to higher demand for health insurance policies. PA&H insurance is expected to grow at a CAGR of 3.1% during 2024-28.
Liability, miscellaneous and marine, aviation and transit insurance is expected to account for the remaining 16.6% share of the general insurance DWP in 2024. A