Takaful growing faster than conventional insurance

The local insurance and takaful market has experienced accelerated digitization due to the increasing demand for digital insurance and takaful products


MALAYSIA The takaful industry continues to grow at a faster rate than conventional insurance. It recorded a compound annual growth rate (CAGR) of 20.6% in the first nine months of 2022 (9M22) and outperformed conventional insurance’s CAGR of 10.8%, according to AmInvestment Bank Bhd (AmBank Research).

Etiqa Insurance and Takaful CEO Kamaludin Ahmad said the increasing demand for pure Islamic products had contributed to a significant difference in growth rates.

Even though the takaful industry is growing rapidly, Kamaludin assesses that this segment will only be half that of conventional insurance by 2030 if the segment continues to grow at the current rate.

“Although the family takaful industry is growing at a much faster pace, it is only 29% in absolute terms than conventional life insurance,” he told Malaysian Reserves (TMR).

Notably, general insurance/takaful growth as a whole has been more muted in recent years, added Kamaludin.

“However, faster growth rates for takaful are also observed with general takaful industry growth rates averaging 10.3% per year between 2017 and 2021.

“This is more than 10 times the general insurance industry’s growth rate of 0.6% per year, and the same as life insurance/family takaful, the amount of general takaful is only around 24% of conventional general insurance,” he said. said.

The increasing demand for pure Islamic products has contributed to a significant difference in growth rates, said Kamaludin (photo: TMR)


Meanwhile, Kamaludin estimates that the outlook for takaful and conventional insurance will remain moderate amidst slowing global economic growth.

“We saw a strong rebound in general insurance/takaful in 2022 as Malaysians returned to the road and increased their purchases of motor protection, but life and family takaful were negatively impacted by weak market conditions,” he said.

AmInvestment Bank analyst Kelvin Ong also expects the general insurance/takaful segment to post moderate growth, between mid-single digits and low double digits for gross premiums and contributions this year.

“On the other hand, premiums or gross contributions for life and family/takaful insurance are expected to contract (this year) compared to 2022, due to the implementation of Malaysia Financial Reporting Standard 17 (MFRS 17), on 1 January 2023. , which will only see premiums and gross contributions are calculated as income, “he said.

MFRS 17, which is equivalent to International FRS 17 in Malaysia, is aimed at increasing consistency, comparability and transparency in financial reporting across the insurance industry. The implications for the finances and operations of insurance companies are expected to differ from company to company.

Digital Insurance

The Malaysian insurance and takaful market has experienced accelerated digitization due to the increasing demand for digital insurance and takaful products.

Hence, the increasing demand for digital services is expected to be a catalyst for the growth of takaful in Malaysia, according to Fitch Ratings.

“This will enable takaful companies to provide services at lower costs and improve customer experience while penetrating new areas,” Fitch said in a report.

On November 25, Bank Negara Malaysia (BNM) announced its plans to open applications for digital insurance and takaful operator licenses (DITO) in 2023, up to five licenses will be issued to successful applicants.

DITO aims to attract new digital players with innovative solutions to address protection gaps, aligned with the Financial Sector Blueprint 2022-2026.

It is also envisaged to run an insurance or takaful business entirely through digital or electronic means, and is expected to encourage new types of business and operating models to meet diversified consumer needs through a wider choice of products and more efficient service quality.

“This trend will continue and be an important driver for the growth of the Malaysian insurance and takaful market,” PwC said in an overview report on the digital insurance and takaful landscape in Malaysia.

The company believes that digital technology plays an important role in achieving the BNM agenda as it enables the distribution of insurance and takaful coverage to a wider population and innovative solutions to penetrate new customer segments.

“Digitalization is discussed extensively in the Financial Sector Blueprint 2022-2026, and has also been identified as one of the important strategic impetus to achieve the following results: Finance for all, finance for transformation, and finance for sustainability,” he said.

  • This article first appeared in the weekly print edition of The Malaysian Reserve

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