Takaful On Track: Malaysia Bringing it Back
By Michael | Published June 14, 2012
Malaysia, one of the world’s most populated Islamic Countries, is experiencing something of a renaissance on the insurance front. However, it’s not just any insurance products which are doing well in the country however, although the Malaysian insurance market is attracting large amounts of interest from some of the world’s largest insurance companies, but specifically Takaful Insurance which is thought to hold the key to the nation’s future development and expansion of the domestic insurance market.
According to Etiqa Insurance & Takaful, the insurance arm of Malaysia’s largest bank by assets, Malayan Banking Bhd, the Malaysian Takaful industry is expected to increase to a total value of RM 7.2 billion (US$ 2.2 billion) over the next three years. Malaysian Takaful insurance is currently valued at RM 4.2 Billion (US$ 1.3 Billion), having grown an approximate 27 percent from 2005 to 2010.
Etiqa’s Chief Commercial Officer Shahril Azuar Jimin, citing the low levels of insurance coverage and penetration rates across the Malaysian population, and specifically pointing to extremely low levels of uptake within the country’s Muslim community, was optimistic about the potential the country held for Takaful providers.
One of the key reasons why Mr. Jimin saw success for Malaysian Takaful Insurers over the next two to three years was due to ever increasingly sophisticated distribution methods. “Ten years ago, there were less than 100,000 agents for takaful, whereas conventional insurance had about 250,000,” he went on to state that Etiqa alone now has a distribution force of approximately 100,000 agents, vastly improving the company’s, and industry’s ability to improve on the currently low levels of coverage being purchased around the country.
At present, only 54 percent of Malaysians hold either a Life Insurance or Takaful Family Insurance product, with Takaful penetration standing at a slightly underwhelming 11 percent.
Mr. Jimin was speaking to reporters on the sidelines of the World Takaful Conference: Asia Leaders Summit (WTC:ALS), which opened on Wednesday June 13th in Kuala Lumpur. The conference has revealed that good times may be in store for Asian, and Global Takaful Insurers.
Global Takaful premium contributions in 2010 were up 19 percent from the previous year. While Malaysia and the rest of South East Asia may hold promise for Takaful Insurers down the road the region still lags behind the Middle East in terms of Takaful contributions, with the Gulf Cooperative Council member states holding the lion’s share of the market with premium contributions equal to US$ 5.68 billion; Asia, including Malaysia, saw total 2010 Takaful premium contributions valued at US$ 2 billion.
The largest single domestic market for Takaful products is, unsurprisingly, GCC country Saudi Arabia, with US$ 4.3 billion in Takaful contributions, the KSA represents more than 51.8 percent of the global Takaful industry.
With the ongoing emergence of previously under-developed and underserved markets in the forms of Indonesia, Bangladesh, and Pakistan, it is expected that the global Takaful Industry will post premium contributions in the region of US$ 12 billion by the end of 2012. There may, however, be a slight Takaful slowdown in some GCC nations – specifically the United Arab Emirates – where the market is mainly General Takaful Insurance products, with Family Takaful accounting for just five percent of the total volume in certain areas.
In fact, there was a general GCC Takaful slowdown in 2010 which went largely unnoticed. Growth in the GCC Takaful market was only 16 percent in 2010, significantly down from the annual growth rate of 41 percent recorded from 2005 – 2009. While this may be due to saturation of the market in certain GCC countries, and an already high uptake, some analysts have cited the installation of compulsory Takaful Medical Cover in Abu Dhabi and Dubai as possibly causing an artificial inflation in the GCC’s overall Takaful growth and are of the belief that current growth levels are more realistic; reflecting the actual market outside of government regulations and legislation.
However, even with the slowdown of growth in 2010, Takaful insurers remain optimistic but cautious. Mr. Jimin of Etiqa was bullish on the 5 year growth rate of Family Takaful products, expecting around 20 percent; which would see Family Takaful insurance outpace both General Takaful and Conventional life insurance in Malaysia. Mr. Jimin also highlighted the fact that there was a massive amount of expansion potential in the Malaysian Muslim Community stating that “The immediate market [for family Takaful], which is the Muslim community, is very much under-insured. We’re also seeing more acceptance from the non-Muslim market because of the equitable aspect that Takaful offers.” Non-Muslim uptake of General Takaful Insurance products was close to 40 percent in the country, with non-Muslim Family Takaful lagging at 25 percent uptake.
Although, it should be noted that it is not all roses and sunshine for Takaful. As is true in any industry, success breeds competition and it is this competition, in addition to a shortage of expertise in Takaful and ever evolving regulations for the industry which have been identified as the major risks for the market around the world. One WTC:ALS attendee was critical of new industry providers stating that the younger organizations attempting to crack the market and compete with more established organizations may not be making use of sustainable business strategies. Aggressive pricing is seen as a key factor putting pressure on overall Takaful profitability, and while there has been a shift towards tying down the tactics which will translate market potential into profitable growth, the fact that there is increasing competition on the back of the attractiveness of the product does mean that there are some minor doubts about the industry’s ability to continue on its current growth track.