THE Malaysian insurance market, including the life and family takaful sectors, is expected to see stable growth in the second half of 2023 (2H23) despite a challenging market environment.
An industry observer said the medium-term growth prospect of the insurance/takaful industry will likely remain strong, as the impact of favourable macroeconomic factors affecting the industry will offset the impact of unfavourable factors.
However, he noted that the underlying health of the industry will be under pressure because of the more systemic impacts of headwinds.
“Globally, we are seeing the highest inflation rate in decades. Although inflation is expected to decline between 2022 and 2023, the rate is expected to remain elevated relative to the historical average.
“Additionally, we also see that the pressure from wages, healthcare and social inflationary pressures are likely to continue for the near term.
“This will impact the entire value chain, from customer acquisition costs to claims and compensation costs of the insurance industry,” he told The Malaysian Reserve (TMR).
He also stressed that insurers must be ready to face the impact of prolonged inflation on their overall operating cost base and claims cost.
Nevertheless, the observer said 2023 will be favourable for the insurance industry, as insurers’ top-line growth is projected to increase.
He added that as a result, premium growth, operating expense ratios and expense claim ratios will show an improvement over pre-inflationary conditions in the near term.
He also said further rate hikes will give insurers much-needed investment income to offset claims.
“Additionally, both the health and financial well-being of consumers are becoming more uncertain.
“There are rising concerns about health and mortality risks, especially during the Covid-19 pandemic, which has led to a widespread feeling of being underinsured.
“As such, we believe that insurers have a great opportunity to expand their health and wealth-product protection portfolios, which supports the overall industry’s growth,” he noted.
Meanwhile, according to GlobalData, the Malaysian insurance industry is projected to grow at a compound annual growth rate (CAGR) of 8.4% from RM73.1 billion in 2021 to RM109.6 billion in 2026, in terms of written premium, led by the life insurance and pension segment.
The data and analytics company highlighted that Malaysia’s insurance industry grew by 7.6% in 2021 after declining by 2.8% in 2020 due to the Covid-19 pandemic-induced economic slowdown.
The life insurance and pension segment accounted for 75.8% of written premiums in 2021.
GlobalData senior insurance analyst Sutirtha Dutta said the life insurance segment in Malaysia is dominated by endowment and unit-linked products, driven by better returns on these products as compared to bank deposits.
“To build on the popularity of these products and increase sales, many insurers offer attractive add-ons which include guaranteed annual cash payments, higher returns on maturity as well as a higher sum assured in case of accidental death,” she said in a report.
On the other hand, GlobalData said general insurance accounted for the remaining 24.2% share of insurance premiums in 2021.
It said the segment is expected to grow at a CAGR of 4.8% from 2021 to 2026, driven by an increase in vehicle sales and expansion of construction activities in the country.
The Malaysian general insurance segment growth will also be driven by the construction sector, which is projected to grow by 11.5% in 2022, according to the Finance Ministry. “This is backed by the acceleration of major infrastructure projects, such as Light Rail Transit Line 3, Mass Rail Transit Line 3, Johor-Singapore Rapid Transit System and the Pan Borneo highways in Sabah and Sarawak,” Sutirtha said.
Insurance Protection Programme for B40
In September 2021, Malaysia launched the Perlindungan Tenang Voucher (PTV) programme.
The programme was aimed at the bottom 40% income group (B40) to enhance social protection for the lower-income group, especially youth and young families, and the lower 40% income group households.
Perlindungan Tenang (PT) products comprise basic insurance or takaful protection against death, fire, or other unfortunate events and are also offered through licensed insurers and takaful operators.
“Increasing demand for life insurance products backed by growth in investment-linked policies and the inclusion of the lower income segment of the population in PT insurance policies will drive the growth of Malaysia’s insurance industry over the next five years,” Sutirtha noted.
According to the General Insurance Association of Malaysia (PIAM), the general insurance industry has recorded an increase in gross direct premiums of 10.3% to RM9.8 billion for the first six months of 2022 compared to the same period last year.
However, the association said underwriting profit contracted by 21.2% to RM810 million, mainly due to losses in the motor, medical and health Insurance business.
In relation to premium, motor remained the largest business line at 43%, followed by fire (29%) and miscellaneous (14%).
PIAM also added that personal accident premiums saw a significant growth of 44% year-on-year (YoY) largely due to the PTV programme.
Premium from the fire insurance business rose by 5% to RM2 billion in 1H22 versus a year ago, with its underwriting profit improving by 23% YoY.
Meanwhile, PIAM also highlighted that the 1H22 premium for marine aviation and transit insurance also rose 7% to RM900 million, while medical and health insurance dropped 6% to RM550 million.
It added that the industry paid out RM15.2 million of claims daily in 2021 with motors representing a significant majority of the total at RM12 million per day.
PIAM also said owing to increased consumer awareness of the risks of damage to property and assets from flash floods, the motor (comprehensive) flood take-up rate more than doubled to 12% in 1H22 compared to 5% for the full year in 2021.
Possible Increment in Insurance Premiums
Separately, AmInvestment Bank Bhd has projected an increase in the value of medical claims for life insurance and takaful following the increase in hospital and medical charges due to inflationary pressure.
Its analyst Kelvin Ong said this does not rule out the possibility of insurance companies and life takaful operators raising the premium or contribution of existing policies or new ones.
He added that there will be potentially higher medical claims on the life and family takaful business this year due to the increased cost of medical expenses.
“In that regard, we do not rule out the possibility of insurance and life takaful companies increasing the premium or contribution of existing, effective and new policies to reflect the recent claim situation,” he said in a research note recently.
According to Ong, premiums or gross contributions for life and family insurance and takaful are expected to contract this year compared to 2022.
This is due to the implementation of Financial Reporting Standards 17 on Jan 1, which will see only life premiums, family takaful and contributions recognised as income.
However, he said the general insurance and takaful segment is expected to record moderate growth between mid-single digits or low double digits for premiums or gross contributions this year.
Commenting further, Ong said unlike life insurance and takaful, the prices of the general insurance segment are expected to remain competitive this year due to the expected stable demand for general insurance and takaful.
“With the reopening of the economy and higher road traffic, we see claims for motor insurance being completely normal, therefore, we do not expect higher claims for general insurance/takaful business in 2023,” he noted.
According to him, with effect from Oct 1, 2022, product prices for the fire and motor segments were liberalised under Phase 2A where the tariff for fire products was reduced by 15%.
He pointed out that the price for non-tariff fire products was also amended to less than 30% of the new tariff and withdrew his ability to charge a premium of up to 30% of the fire tariff.
“Meanwhile, price flexibility for the motor segment has been increased to 15%, higher than the 10% tariff under Phase 2.
“Phase 2B will start on July 1 this year, which will see greater price flexibility for motor insurance products, and we expect this gradual liberalisation to put pressure on motor and fire insurance prices,” he said.
Source: https://themalaysianreserve.com/2023/02/21/insurance-industry-to-see-steady-growth-despite-a-challenging-environment/