s a result of increased uncertainty, awareness of the benefits of insurance has risen across society in Malaysia, but affordability and availability remain major issues, said Mr Ahmad Noor Azhari Abdul Manaf, president and CEO of Malaysian Reinsurance (Malaysian Re).
In comments made in Malaysian Insurance Highlights 2024”, an annual research publication, focused on trends and developments in the Malaysian insurance market, he added, “The power of subsidies to increase insurance uptake is recognised by the policymaker and regulator, but tight public budgets remain an obstacle. Our industry thus strives to find the right responses to the intertwined technological, climatic, and socio-economic risks that we currently confront.”
This year’s edition of “Malaysian Insurance Highlights” also explores how a drastically changed risk landscape has impacted Malaysia ´s insurance market, particularly personal lines. Key topics addressed include the insurability of climate-related risks and catastrophe modelling developments, solutions to increase the uptake of insurance in low-income groups, and opportunities for growth in health insurance.
Advances in catastrophe modelling key to insurability of climate risks
Climate change is increasing the probability of future extreme weather events in Malaysia and testing the limits of the insurability of climate-related risks. Improved catastrophe models are key in stepping up to address the new risk landscape.
For example, models are now available in many locations for high-frequency secondary perils such as floods, and a new generation of catastrophe models incorporating climate model outputs is emerging to quantify the financial impact of future climate risks. Other shared modelling insights include approaches to reducing uncertainty associated with poor exposure data in emerging markets. Furthermore, climate change should be considered when calibrating insurance solvency frameworks.
Need to maintain the momentum of inclusivity solutions
Research, such as by the Institute and Faculty of Actuaries, has shown that low-income and vulnerable consumers are often charged higher premiums and may even be denied coverage altogether. This reflects complex factors such as paying by instalment and living in lower-standard buildings. In addition to the issue of affordability and availability, increasing the uptake of insurance within these groups requires overcoming challenges including lack of risk and product understanding, and lack of trust. Solutions to enhance inclusivity, and therefore resilience, therefore necessitate public-private collaboration and institutional delivery mechanisms.
Examples described in this report include the mySalam scheme, which provides a hospitalisation allowance and lump sum payment for defined critical illnesses to beneficiaries in households with the lowest 40% of income (B40 group), and the Perlindungan Tenang initiative, introduced by Bank Negara Malaysia to enhance access to insurance and takaful protection in the B40 group through simple, affordable products with easy-to-understand standardised features.
Opportunities to close the life protection gap and help shoulder healthcare costs
As reported by EY, 90% of Malaysia’s population is deemed underinsured (life and non-life). In addition, according to the Malaysian Life Insurance Association, LIAM, 85% of SMEs – the backbone of the Malaysian economy – have insufficient protection, only 4% of households in the lower-income segment have life insurance, and 90% of those that do have life insurance are insufficiently covered if the breadwinner of the family was to become disabled or die.
In the life sector, momentum returned in 2023 with new business growth of 11.6% after a challenging 2022. Family takaful also saw premiums rise by almost 16% in terms of new certificates issued (ISM 2022). Given rising risk awareness, low-cost term and endowment products, and support measures from Bank Negara Malaysia, the outlook is positive, with gross written premiums expected to grow at close to or above 5% over the next three years.
With a growing, but ageing population, an increasing disease burden (from factors including lifestyle risks, urbanisation, and pollution), and rising costs due to medical progress, Malaysia’s healthcare system is under pressure and underfunded. The Ministry of Health (MOH) shoulders the lion's share, followed by private household out-of-pocket expenses which account for almost a third of costs.
The report proposes that private health insurance could reduce this burden on individuals and simultaneously reserve public resources for the underprivileged segments of society. Notably, although the number of in-force critical illness policies in Malaysia saw a CAGR of almost 13% between 2015 and 2019, and protection levels have increased, the report notes that in absolute terms protection has decreased due to inflation, medical inflation, and higher incomes.
To help close protection gaps and meet demand, the report reinforces the need to redesign insurance products to appeal to changing consumer preferences, including through the use of e-commerce platforms, more digital solutions, risk mitigation, and value-added services, for example by embedding products with experiences tailored to consumers’ interests.
Malaysian Re, which is Malaysia’s leading reinsurance company, is a wholly-owned subsidiary of MNRB Holdings Berhad (MNRB).
For the full report please click here.