BNM Boosting Takaful

Bank Negara Malaysia’s (BNM) measures such as the introduction of Perlindungan Tenang, the implementation of Balanced Scorecard framework, and other measures, are viewed positively as catalysts to stimulate higher take up rate of insurance policies.

MIDF Amanah Investment Bank Bhd’s research arm (MIDF Research) pointed out that these proactive measures by the central bank are a welcomed sight.

“We are optimistic on the prospect of insurance and takaful industry improving further given the ample room for growth, supported by BNM’s proactive measures to innovate the industry,” it said.

It noted that in 2017, the insurance and takaful industries maintained its positive momentum in 2017 with an overall growth of 3.5 per cent y-o-y compared with 4.4 per cent y-o-y in 2016, supported by growing demand for protection products.

“We see life insurance and family takaful combined, grew at a decent rate of 5.8 per cent y-o-y in 2017 in terms of new premium and contribution.

“We noted that the product type composition of both life insurance and family takaful remained broadly unchanged, a trend seen over the last five years. The product composition was mainly composed of whole-life endowment, mortgage-related term insurance and takaful products, which made up 64.8 per cent of total new premiums or contribution.

“Based on prevailing trend, we expect aforementioned products will continue to dominate new premiums/contributions share at least in the near term,” it added. The research team further highlighted that life insurance and family takaful uptake among Malaysians have seen gradual increase. “Overall penetration rate of both life insurance and family takaful policies stood at 36.5 per cent, improving by two percentage points (ppts) y-o-y.

“We are able to see encouraging development in take up rate among those of working age (20 to 59 years old) as well, where penetration rate reached 50.4 per cent in 2017, up by 3.6 ppts y-o-y,” it said.

Despite the positive trajectory, MIDF Research said, the life insurance and family takaful has yet to achieve its full growth potential given its low overall penetration rate. As such, it said, “Pursuant to this slow progression, it is comforting to see that BNM had launched several proactive measures to better stimulate the industry’s growth.”

Among them, it noted that the introduction of Perlindungan Tenang, an initiative to introduce a range of insurance and takaful products to meet the needs of underserved Malaysians, particularly the Bottom 40 per cent household segment (B40), over 2,000 Perlindungan Tenang policies were sold within the first two months.

“Looking at the trajectory in 2018, we believe the numbers of policies sold will trend higher with more participation from insurers and takaful providers coupled with higher public awareness campaign on Perlindungan Tenang,” it opined.

Other measures by BNM to stimulate insurance and takaful industry further include the implementation of Balanced Scorecard framework, offering of products through direct distribution channel, and implementation of free-pricing mechanism for general products.

“We see all the measures mentioned above as catalysts to stimulate higher take up rate of insurance policies,” the research team added. Meanwhile, on the performance of the general insurance and takaful industries, MIDF Research general insurance and takaful were almost flat in 2017.

“Notwithstanding this, we are encouraged to see positive growth in the motor, fire and medical business; classified as the three largest contributors to gross premiums and contributions,” it said, noting that the motor segment grew by 3.6 per cent in 2017, benefiting from higher new car sales.

“Moving forward, we believe general insurance and takaful will display improvement taking into account the recovery of oil and gas sector, supported by key segments’ positive momentum,” it commented.

It added, “While we are aware of the potential impact of phased liberalization to the general insurance and takaful industry, we have yet to see this materialize at a significant level. According to BNM, this was due to short period of implementation to date and the overall cautious approach to premium pricing.”

Overall, MIDF Research pointed out that the industry maintained its performance in 2017 which is within its expectation. It also noted that the growth in premium and contributions are expected to improve the industry’s earnings performance.