KUALA LUMPUR: The insurance industry is expected to be stable in 2015 despite the uncertainties in the global economy affecting Malaysia, say industry experts.
Etiqa Takaful Bhd Chief Executive Officer Ahmad Rizlan Azman said there is a huge market potential which assures continued growth in the years ahead.
He also said the market penetration rate for Takaful is relatively low compared to the Muslim population in Malaysia.
“However, given the large untapped market that still exists with only 54 per cent of the population having a life insurance or Family Takaful policy, there is significant room for growth in Malaysia,” he told Bernama.
Rizlan said on the whole, the Takaful industry performed relative better than conventional insurance, adding, in terms of total contribution, the former registered an increase of 4.4 per cent in 2013 compared to 2012.
Conventional insurance recorded an increase of 4.1 per cent in total premium over the same period.
Meanwhile, Takaful Ikhlas Bhd President and Chief Executive Officer, Abdul Latiff Abu Bakar agreed with the view on the development of the Takaful industry versus conventional insurance.
He cited Bank Negara Malaysia’s (BNM) Monthly Statistical Bulletin, which indicated that in the first half of 2014, the Takaful sector recorded a five per cent growth in Takaful asset funds, while conventional insurance posted a four per cent growth.
But, Abdul Latiff also highlighted that according to the asset fund statistics from the BNM Monthly Statistical Bulletin, for the first half 2014, the Takaful sector recorded a decline in net contribution income of seven per cent as compared to the same period of 2013.
Its conventional counterpart recorded growth of 10 per cent in premium income over the same period.
On the year-end wrap up, the Takaful industry is expected to continue on a strong double-digit growth of more than 20 per cent, based on the Ernst & Young ‘Global Takaful Insights 2014’ report.
“Malaysia has emerged as the world’s largest family Takaful market and is expected to continue taking the lead in the Asean Takaful segment, holding 70 per cent of gross Takaful contributions,” Abdul Latiff said.
On challenges, Rizlan said the insurance industry in 2015 will face diverse changes, due to the enactment of new regulations and the risk-based capital (RBC) regime for Takaful.
“The implementation of the Financial Services Act 2013 (FSA) and Islamic Financial Services Act (IFSA) 2013 will see composite insurers and Takaful operators relinquish their composite licenses, hence splitting the life/family and general businesses into different entities, as operators are given five years to comply with the requirements,” he added.
He said that the requirement for composite insurers to segregate their operations into separate licenses for the life and general businesses could lead to another round of market consolidation.
“Composite insurers are likely to dispose of parts of their insurance operations if the cost of additional capital becomes a burden, as a result of regulatory compliance costs outweighing the return that can be generated,” he added.
Meanwhile, Abdul Latiff said implementation of the IFSA is currently ongoing and various aspects needed to be looked into in complying with the regulatory exercises, so that Takaful operators bound by this regulation remain relevant in the market.
Rizlan, on his part, mentioned that there is also a shortage of underwriting and reinsurance expertise in general Takaful, but most importantly, the challenge for the Takaful industry is still public awareness.
“Thus, more programmes and activities to educate and increase the information dissemination on Takaful is pivotal,” he said.
Abdul Latiff echoed Rizlan on the need for Takaful awareness, and commented that the lack of it among non-Muslims is very telling.
“Takaful Ikhlas will direct its focus on featuring the concept and practice of this segment in a more multiracial-centric medium to attract a higher take-up rate among the non-Muslims.
“At Takaful Ikhlas, we have embarked an on-going campaign to promote Takaful to the non-Muslims.
“Additionally, with the emergence of a large base of the Generation-Y market, there is a need for the industry to take a different approach in marketing its products and services.
“This includes a better system and technology in business transactions to facilitate faster turnaround time, quality services, and ease of doing business with customers,” he said.
On the external outlook, Lloyd’s Asia, Asia Pacific Head, Kent Chaplin said the global Takaful market is expected to continue to grow at about 14 per cent in 2014, driven by the primary markets of Malaysia, Saudi Arabia and the United Arab Emirates.
By 2017, the global Takaful industry may reach over US$20 billion.
“Malaysia has emerged as the world’s largest family Takaful market.
“Its total net contribution of family Takaful reached US$1.4 billion last year with steady growth from regular contribution products. Malaysia will continue to be the market in Asean to watch,” Chaplin said. – Bernama