Both have a stable outlook on the Malaysian insurance and takaful sector, which is supported by steady growth in insurance demand, with capitalisation robust and claims under control.
Slower Growth 2024 - It is forecasted that a slower year-over-year new business (NB) expansion of 3.5%-4.0% in 2024 (2023: +4.2%) in the life and family sector as consumers face rising costs, anticipating the planned reduction of RON95 petrol subsidies and noting that policy surrenders and forfeitures have already crept up.
Medical claims - have also surged recently, trimming the earnings of life insurers and family takaful operators, with repricing exercises being implemented to counteract this shift. Bank Negara Malaysia (BNM) advices insurers and takaful operators to include cost-sharing provisions in new individual medical and health products. This could partially stem medical inflation though we view this to happen over the longer term.
Motor Insurance - Car sales has led to projections of general insurance and takaful sector premiums growth at 5% this year, slowing down from 9.4% seen in 2023, with margins at their thinnest in a decade and expected to remain compressed amid intense competition.
Capitalization - will stay strong as sufficient buffers are in place to withstand potential shocks. Industry capital adequacy ratios as at end-December 2023 were over 200% (required minimum: 130%).”
Digitalization - efforts by existing industry players and upcoming digital insurers and takaful operators (DITOs) will help enhance customer experience and move insurance penetration closer to the central bank’s target of 4.8%-5.0% of GDP.
BNM recently launched a licensing and regulatory framework for DITOs which will promote greater innovation within the industry and help narrow the protection gap especially among the underserved segments. This encourages the adoption of new and emerging technology-based solutions, with licensees expected to advance in three core areas: inclusion, competition and efficiency.
In the medium term, the entry of DITOs would intensify competition while also complementing existing players targeting the underinsured and uninsured. The application period for said licenses is to open in January 2025 and close in December the following year, with no limit set for the number of DITO licences to be awarded.
Financial market volatility continues to heavily influence the returns of insurance and takaful operators, particularly those in the life/family takaful sector given substantial investment assets held. It is expected that family takaful to continue to make up between 40% and 50% of NB premiums, especially as the Islamic banking sector continues to outpace its conventional counterpart in line with the “Islamic first” strategy adopted by various banks.
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