Malaysia Takaful Positioned to Grow
By Marius | Published April 26, 2011
A new report issued by Bank Negara Malaysia (BNM), Malaysia’s central bank, demonstrates the continued growth in demand for takaful products and the country’s overall continued prominence in the global Islamic insurance industry.
The takaful industry in Malaysia was established in 1985 after the enactment of the Takaful Act 1984. The Malaysian government has played a prominent role in supporting the development of the takaful insurance sector by actively encouraging insurers to accelerate their expansion across the country to meet the coverage needs of both the growing urban and rural Muslim population. The Government’s support for both foreign and local takaful insurers in the market resulted from deficiencies within the Islamic insurance industry in previously developing insurance products to adequately meet the Malaysian market’s specific demands. According to BNM, Malaysia has become the largest takaful market in the world with over one quarter of total international takaful assets being held in the country, and valued at 12,445.5 million ringgit (US $4.15 billion) in 2009.
Bank Negara Malaysia’s 2010 Financial Stability Report, a supplementary study attached to the bank’s annual report, revealed that total income from family takaful policies increased nearly 20 percent on 2009’s figures, from 3,381.6 million ringgit (US $1.13 billion) up to 4,030.2 million ringgit (US $1.35 billion) for 2010. This data includes the increase in net contributions for family Takaful, which rose to 3,326.9 million ringgit (US $1.1 billion), and net investment income which similarly grew from 354.8 million ringgit ($118 million) to 451.6 million ringgit ($150 million) in 2010.
For general takaful, the underwriting profit in 2010 experienced a slight decline from 170.1 million ringgit (US $ 57 million) to 145.8 million ringgit (US $48.6 million), although the overall operating profit for takaful providers in Malaysia improved from 247.5 million ringgit ($82.6 million) to 272.4 million ringgit ($90.92 million) over the same period. Additionally, investment income for general takaful enjoyed an increase from 57.7 million ringgit ($19.3 million) to 67.9 million ringgit ($22.66 million).
According to the BNM report, both the standard insurance and takaful sectors have sustained domestic demand for savings and protection products in Malaysia. In the past 5 years, the Malaysian insurance industry has experienced a compound average growth rate of 27 percent per anum in terms of net premium contributions, with family takaful policies leading the way. Family takaful grew 28 percent annually over the last 5 years and now represents more than 80 percent of Malaysia’s total Takaful market. The improved performance of the local equity market has also supported stronger results for the year.
Growth has been driven by a strong post-2009 recovery in demand for investment-linked products as well as rising per capita GDP and increased Malay consumer capacity for common life and non-life protection insurance services. Payout of benefits and claims as a percentage of premiums in 2010 increased marginally up to 58 percent for life insurance business and 62.3 percent in general insurance. Demand for coverage products is only expected to rise as the market still remains largely untapped with only 54 percent of the Malaysian population currently holding a life insurance or family takaful policy.
The promising forecast for the domestic insurance industry has coincided with the arrival of several new takaful companies in Malaysia. The latest is ING Public Takaful, launched in April 2011 as a joint venture between the Malaysian subsidiary of ING, the Dutch financial services group, and the local banks Public Bank Bhd and Public Islamic Bank Berhad.
Speaking at the launch of ING Public Takaful Ehsan, Bank Negara Deputy Govenor Mohd Razif bin Abd Kadir remarked that this new international joint venture marked an important milestone in Malaysia’s economic evolution. “With this strategic alliance between two financial groups of such caliber, Bank Negara Malaysia looks forward to strong management stewardship, innovative product offerings, wide distribution channels, operational and service excellence as well as breakthrough business strategies that are well-matched by robust risk management capabilities,” the deputy governor said. Malaysia remains determined to put forth a great effort in providing a sufficient financial safety net and proactive investment opportunities for its growing Muslim population
Industry analysts have outlined several key indicators that could further drive the growth of the takaful industry in Malaysia. The first is to take advantage of the relative low penetration rate of certain takaful insurance services in the market, particularly medical and health takaful, which accounted for only 9 percent of new business in family takaful for 2010. The transformation of Malaysia from a middle to high income country will also present continued growth opportunities. The takaful industry will need to take advantage of their more affluent customer base by broadening their services and offering more sophisticated investment-linked and wealth management products. Designing products that can appeal to both Muslims and non-Muslims while retaining Shariah compliance in business operations could also present a challenge.
Another key factor to takaful development will be the Malaysia International Islamic Financial Centre (MIFC) initiative, which originated from the Malay government in 2006 as a way to enhance the international position of Malaysia’s Islamic finance operations. Deputy Gov. Mohd Razif explained the importance of stimulating the Islamic financial services industry: “This presents a huge window of opportunity for our Takaful operators to accelerate their regional and global orientation and move up the global value chains. It is therefore important for strategic international partners such as ING to explore all possible avenues to elevate the business potential of Takaful internationally,” he said.
Further global and regional Takaful partnerships are planned to develop and enter the market in upcoming years. The Malaysian Government has been committed to the gradual financial liberalization of its Islamic finance sector with four new takaful licenses being granted to international insurers by the central bank in 2010. Notable companies that have entered the Malaysian takaful industry under this recent legislation include: AIA AFG Takaful Berhad, a 70:30 joint venture between AIA Berhad and Alliance Bank Malaysia Berhad, the previously mentioned ING Public Takaful Ehsan, and a partnership between AMMB Holdings Berhad and Friends Provident Group plc, UK. A joint venture featuring Koperasi Angkatan Tentera Malaysia Berhad and Great Eastern Life Assurance Company Limited and has been granted a takaful license but has yet to commence operations in the country.
These entrants bring the total number of takaful providers in Malaysia up to 12. These other Malaysian takaful operators include HSBC Amanah Takaful Sdn Bhd, CIMB Aviva Takaful Berhad, Prudential BSN Takaful Berhad, Hong Leong Tokio Marine Takaful Berhad, Etiqa Takaful Berhad, Syarikat Takaful Berhad, MAA Takaful Berhad, and Takaful Ikhlas Sdn.Bhd.
The takaful insurance market has become an important market for multinational insurance companies searching for new sectors and opportunities for growth. While the outlook in more established international markets remains quite static, demand for takaful insurance products, targeted towards Muslim populations prominent in Middle-East, North Africa and South Asia, has grown significantly, particularly in Indonesia, Qatar, Saudi Arabia, the UAE and Malaysia.
AIA AFG Takaful Bhd
AIA AFG Takaful Bhd is a joint-venture company between American International Assurance Bhd. and Alliance Bank Malaysia Berhad, a wholly owned subsidiary of Alliance Financial Group Berhad.. AIA AFG Takaful Bhd. aims to create and introduce innovative and competitive Shariah-compliant solutions respecting the needs of the Muslim community and service quality demands of all Malaysians.
ING provides banking, investments, life insurance and retirement services and operates in more than 50 countries. It serves more than 85 million private, corporate and institutional customers in Europe, North and Latin America, Asia and Australia.
Bank Negara Malaysia
Bank Negara Malaysia is Malaysia’s central bank, tasked with overseeing the nation’s economic and financial systems.