Bank Negara Malaysia, in its efforts to boost the penetration rate, has among others, introduced the Life Insurance and Family Takaful Framework (Life Framework) in 2015.
AIA Group Ltd Chief Executive Officer/President, Ng Keng Hooi, the first Malaysian to helm a global firm as big as AIA (the world's second largest life insurer), said giving tax perks for insurance expenses would, to a certain extent, encourage people to buy insurance and take care of their own medical needs.
"The government should increase tax relief for life and medical insurance policies to improve insurance penetration rate in Malaysia," Ng said in a recent interview with Bernama.
He said unlike developed Western countries, Malaysia did not provide a social safety net and the people had to take care of their own security.
"Hence, we have always been encouraging the government to use fiscal policy and take necessary steps to promote the insurance industry," he said.
Ng said by providing tax perks, the government would be encouraging the people to take care of their own medical needs.
The Life Insurance Association of Malaysia, since proposing in its 2012 budget wishlist, has also been urging the government to raise tax relief for medical and education insurance premiums, as well as provide a separate tax relief for life insurance premium and the Employees Provident Fund to promote better financial planning for the people.
He said many households in developing countries, including Malaysia, remained severely underinsured.
"For instance, we found out that we only paid out an average claim of between US$10,000 and US$30,000 (US$1= RM4.27) to an individual who was affected by the major airline tragedies - Malaysia Airlines' MH370 and MH17, as well as Air Asia's QZ8501.
"What was paid to them was not a special insurance but claims from the individual policy they had bought," he said, adding that those involved in the tragedies were both locals and foreigners and were not low-wage earners.
"That means the underinsurance situation is huge out there," he said.
On Malaysia's insurance industry's sperformance, Ng, who is also one of the founders of
Prudential BSN Takaful Bhd (PruBSN), said the protection level among Muslims remained low at approximately between 10 and 20 per cent of the 55 per cent penetration rate.
"But PruBSN has yesterday become the largest takaful player in Malaysia's market since its inception in 2006, marking an improvement among the Muslim population in Malaysia," he said.
He said AIA Public Takaful Bhd, currently ranked the second largest takaful business in Malaysia, also proved that the Muslim market was fast growing and has huge unexplored potential.
"Our (AIA Public Takaful) aspiration is to beat PruBSN," he said.
Ng said the Malaysian market tended to be more protection-focused as compared to
China's which was more inclined towards short-term saving products.
"The saving-type products are similar to bank deposits. For instance, an insurance company will provide a five per cent per annum interest for five years versus the three per cent annual interest from a bank.
"Obviously, the banks offer higher interest rate, but when one spends RM5,000 annually for a protection product, you easily get a coverage of between RM500,000 and RM1 million.
"Whereas, when one buys the saving-type product, what you get in the end is just about RM6,000 to RM7,000, including interests," he said.
Ng said more efforts to educate and raise awareness were needed to improve the protection rate in Malaysia.
Under the LIFE Framework, the central bank, in a move which aims to reach 75 per cent penetration of the life insurance by 2020, require insurers to offer pure protection products through direct channels without commissions from 2017.
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