Posted on Mar 19, 2012 by Sergio Ulloa
Malaysia's life insurance regulator expects another of year of sustained progress for the country's insurers, with new business premiums now forecast to grow by a moderate 7 to 10 percent in 2012 despite ongoing global economic uncertainty.
The Life Insurance Association of Malaysia (LIAM) believes that the further development of the South Asian country's life insurance sector will hinge on several market opportunities in 2012, chief among them being the continued development of the Malay economy at large. Economists have pegged Malaysia's gross domestic product (GDP) growth at between 5 and 6 percent this year, with the country's emerging services and manufacturing sectors leading the development charge, according to an article in The Star
. The LIAM's positive life insurance industry growth forecast thus falls into line most analyst expectations, as insurance market prospects can usually be tied at 2 to 3 percent above a given country's GDP growth rate.
This organic economic growth will be further supported by several important government initiatives. The Malaysian government has rolled out investment projects
with the explicit goals of stimulating domestic economic activity, doubling GDP per-capita and turning Malaysia into a developed and high income country by 2020. These new initiatives, which include the Economic Transformation Program, the 10th
Malaysian Plan, and higher tax incentives for retirement products and private pension plans, will provide a platform for life and general insurance products to expand throughout Malaysia.
The LIAM added that in addition to these developments, the country's current low insurance penetration rate, helped guide their industry forecast of a 7 to 10 percent growth rate this year. Around 43 percent of the Malaysian population currently holds some form of life insurance protection while the Shariah-compliant takaful equivalent
is held by about another 10 percent, according to the LIAM.This level of life insurance penetration is low by developed economy standards and thus attempts to close this coverage gap should spur domestic market demand. As part of the LIAM's five year strategy plan, the association will continue to drive its consumer education program and raise awareness of the value of insurance, especially the need for savings and protection, in order to boost the level of insurance penetration in the country. Added to this is the current low interest rate environment, which will likely act as further impetus to consumers who are seeking high-yield financial products like insurance in Malaysia.
The LIAM outlined that while Malaysia's life insurance industry managed to maintain a steady growth rate last year, its performance could not match the highs of 2010. According to their recently released stats sheet, the Malaysian life insurance market's growth rate declined by 6 percent in 2011, with new business total premiums falling down to MYR7.92 billion (US$2.6 billion) from MYR8.42 billion (US$2.76 billion) in 2010. This decline was predominantly attributed to one insurer's decision to scale back their single premium individual traditional life insurance products, which drove the sector's new premium levels down by 18.5 percent. Outside of this development, annual premium individual business in Malaysia actually achieved a healthy 8.9 percent growth rate, with investment-linked businesses continuing to outperform traditional lines. In fact, while the size of traditional life insurance business is still larger than investment-linked businesses in Malaysia, with total annualized premium of MYR2.2 billion (US$720 million) versus MYR1.8 billion (US$590 million), the gap is narrowing year by year. The LIA also noted that group life insurance business also enjoyed a steady growth rate of 3.3 percent in 2011 and this figure is only set to improve as Malaysia's economy grows and more domestic companies begin to entice employees with benefit packages.
In line with this steady growth in new life insurance sales, the LIA report acknowledged that the total premium for in-force insurance policies in Malaysia also managed to grow by 9.4 percent last year, as insurers managed to raise rates on consumers through more sophisticated and higher-margin individual and group insurance policies. On individual life insurance, the LIA noted that growth came predominantly from annualized premium policies, while single investment-linked business premiums saw a pronounced 30 percent decline in in-force premiums during 2011. Annualized premium investment-linked business meanwhile experienced a stronger growth rate of 12.5 percent against traditional annual premium business, which grew by 8.5 percent last year. In absolute terms, the LIA found that traditional annual premium business added more than MYR1 billion (US$330 million) in premium value throughout 2011, while the corresponding addition in investment-linked annual premium business amounted to MYR771 million (US$253 million).
Going forward the LIAM expect sales of both regular premium and investment-linked life insurance products to pick up and drive the further development
of Malaysia's life insurance market. Given the recent moves made by the national government to encourage greater coverage, the association also expects retirement-related products, health insurance and other protection-related policies
to do quite well in 2012. For life insurers working to position themselves in a fast moving but still underdeveloped market, developing more robust distribution channels that expand into Malaysia's largely untapped rural markets will furthermore become crucial to boosting overall sales and raising the country's low insurance penetration rate.
The LIAM warned however that global economic uncertainty, particularly the ongoing Eurozone and US debt issues, could still restrain the growth potential of the Malaysian life insurance industry but would not prove as fatal as once thought. The South Asian country's life market managed to sustain small but positive growth figures even in the midst of the 2008 global economic slowdown, and now with added financial system buffers and improve risk management practices in place, the regulator is confident that the industry could quickly mitigate any effects from another potential global credit crunch.
The Life Insurance Association of Malaysia (LIAM) is a trade association that represents the interests of those participating in Malaysia's life insurance market. Founded in 1996, the LIAM features 17 member companies, of which 15 are life insurance companies and 2 are life reinsurance companies.