Malaysian Insurance Industry Model - Broken!!!

The insurance industry’s current business models are “broken” and need to be fixed so that more Malaysians can afford coverage, says Bank Negara governor Tan Sri Muhammad Ibrahim.

He pointed out that most insurance products in the market are too expensive for the general public with the industry focusing on a narrow segment of the population.

“From the perspective of the population that remain under-served, the existing business models are essentially broken,” said during his keynote address at the Malaysian Insurance Summit 2017 yesterday.

He also said the industry needed strong domestic players.

“The industry needs domestic shareholders that have a long-term outlook and can support the deepening of our market,” Muhammad said.

He chided recent opportunistic shareholding transactions that have destabilised market players.

“A number of domestic shareholders who after being given a licence and the opportunity to participate in the insurance sector sold off their shareholding and made quick profits,” he said without mentioning any names.

“These types of shareholders are a cause of instability to the insurers’ operations and not the kind of shareholders that would be viewed favourably for future participation in the financial industry,” Muhammad said.

The governor also said the industry should promote greater transparency and prudence in its business.

On premiums collections, Muhammad said the current practice where agents collected premiums from customers in cash and made payment to insurance and takaful companies using the agencies’ own cheque or credit card should cease. He added that the industry facilitated customers to make direct payments to the insurance and takaful companies.

Another issue raised by Muhammad was underinvestment in domestic talent in the insurance industry. He said that between 2014 and 2016, about RM1.3bil of payments made by insurers in Malaysia to foreign affiliates.

“Among a large number of foreign insurers, significant reliance on group level support has limited the investments in core functions needed to develop strong domestic capabilities,” he said.

To address the issue of unaffordable insurance products, Muhammad said the central bank is partnering with the industry to roll out Perlindungan Tenang, a national branding and communication platform next month in Kuching.

“Perlindungan Tenang is intended to reach 8 million working-age Malaysians and over 700,000 micro-enterprises that currently need insurance and takaful protection against key risks. To date, four insurers and two takaful operators have developed products that will be introduced under this initiative and we should expect much more will come on board,” Muhammad said.

Products that meet the criteria of being affordable, accessible and easy to understand will carry the Perlindungan Tenang logo and will benefit from regulatory flexibilities and co-branding and promotional initiatives.

By 2020, Muhammad hoped that about 75% of the population would have some sort of insurance coverage, from 56% of insurance penetration at present.