Malaysia Insurance Country Overview
2013
Table of Contents Macroeconomic Picture ................................................................................................... 3 Insurance Market in Malaysia .......................................................................................... 3 2.1 2.2 2.3 2.4
Malaysian Insurance Penetration Trend .......................................................................................... 3 Malaysian Insurance Market – 2012................................................................................................ 4 Non-Life Insurance by Segment in Malaysia .................................................................................... 4 Profitability – Malaysian Non-Life Market ....................................................................................... 5
Competitive Scenario - Malaysian Market ........................................................................ 5 Malaysia Financial Sector Blueprint 2011-2020 ................................................................. 6 Key Developments -General Insurance Industry ............................................................... 6 5.1 Financial Services Act 2013 .............................................................................................................. 6 5.2 Competition Act 2010 ...................................................................................................................... 7
Agency and Other Distribution Channels .......................................................................... 8 References ....................................................................................................................... 9
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The robust pace of economic activity is expected to continue in 2013 and over the medium term. Consumption in 2013 will remain supported by low unemployment and by fiscal transfers. Investment should also remain strong, reflecting in part a large pipeline of ETP related projects. GDP growth is expected well above 5% till 2017. With output at about potential and dissipating base effects, inflation is projected to rise slightly to 2.2 percent in 2013. In addition, the introduction of a minimum wage in 2013, the gradual removal of fuel price subsidies, and the planned adoption of a goods and services tax (GST) are expected to have small one-off effects on inflation in the period 2013−15, tapering off subsequently. Source: IMF
The Malaysian economy has undergone rapid structural changes. As a result of profound emphasis on the manufacturing sector in the late 1960s and the establishment of a Free Trade Zone Area (FTZ) in the early 1970s, the economy has gradually turned from a trade-oriented economy based on agriculture commodities to a more diversified export-oriented economy.
2.1 Malaysian Insurance Penetration Trend
Malaysia’s economic performance in 2012 surpassed expectations. Robust domestic demand is offsetting external weakness and is fueling growth; GDP grew by ~5.6% in 2012 as compare to 5.1% in 2011. Private and public investment has been a key driver of the expansion, supported by low interest rates and the catalytic effects of large projects under the Economic Transformation Program (ETP), particularly in oil, gas, and infrastructure. Consumption growth has also been vigorous, supported by a strong labor market, credit to households, and government transfers. Inflation eased in 2012, on lower global commodity prices and base effects. Average CPI inflation was 1.7 percent in 2012. Indicators of underlying inflation have also remained relatively subdued.
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Malaysian insurance market is considered having a tremendous growth opportunity. Life as well as Non Life insurance penetration today is relatively low - it has been at the average level of just above 3.5% for Life and around 1.6% for Non Life. Life as well as Non-life penetration has risen marginally in the last five years from 1.5% to 1.5% and 3.6% to 3.8% respectively due to increased consumer awareness and government encouragement.
Motor and Fire insurance are the two biggest contributors to the general insurance sector in terms of the amount of premiums. Motor premiums, which represented ~47% of total net premiums in 2012, have grown by 7.6% as compare to 2011.
2.3 Non-Life Insurance by Segment in Malaysia
2.2 Malaysian Insurance Market – 2012
Malaysia’s insurance industry is one of the key drivers of the service sector. The industry expanded at a rapid pace over the last several years in tandem with the economy. Net written premium reached USD 6 Bn in 2012, a 5.05% increase compared with 2011. Non-life insurance revenues for 2012 were USD 3.4Bn, up 7.14% over the same period in 2011, while premium for life insurance reached USD 2.7Bn, a 2% increase over the same period in 2011. However the market was slowed down in 2009 following the Great Recession, Malaysian insurance market rebounded aggressively and posted a robust 19% growth in 2010 before moderating to 7% in 2011 and ~5% in 2012.
Malaysia’s insurance market is dominated by NonLife sector which has increased its market share in the overall market in terms of total written premiums from 49% to 56% in 2012. Non-Life sector has grown with CAGR of ~10% in last 5 years to reach around USD 3.4 Bn in 2012. In terms of market share, general insurance sector has maintained the trend in segmental distribution in last five years. The Motor sector dominated the market at 46.6% in 2012, which was an increase of 4% from the share in 2007. The Fire sector's share was reduced from 19.1% in 2007 to 16.4% in 2012. All the other sectors maintained their respective market shares with minor positive and negative growth.
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The Motor and Fire classes of business recorded increased premiums in 2012 with motor recording written premiums of ~USD 1.6 Bn which was an increase of ~7.6% over the previous year. The Fire class recorded a 6.5% increase to reach ~0.6 Bn in 2012. Medical insurance is the third fastest growing segment amongst the major lines, growing with around 5.4% to reach USD 0.20 Bn compared to 2011.
Generally, the NCIR for most classes of business showed a downward trend in 2012, except for Contractors’ all risk and Engineering (CAR & ENG), which recorded an increase from 45.8% to 57.3% in 2012.
2.4 Profitability – Malaysian NonLife Market
The general insurance industry recorded an underwriting margin of 12.6% compared to 9.8% in 2011. However, the combined management expenses and commissions ratio had increased to 30.3% from 29.5% compared to the year before. The overall Net Claims Incurred Ratio (NCIR) was on a downward trend in 2012 as it dropped to 57.1% from 60.7% in 2011.
As at end of December 2012, there were 42 service providers in the Malysian insurance market. This includes 35 Malaysian-incorporated direct insurers, 3 Malaysian-incorporated Professional reinsurers, 4 foreign-incorporated professional reinsurers. In addition to this there were 31 insurance brokers, 36 adjusters and 16 financial advisers also operating in the market.
The overall Motor NCIR decreased slightly to 72.8% (2011: 76.8%), while Medical and P.A. both dropped to 55.6% and 28.9% respectively. The NCIR for "Motor Act" cover (i.e. cover for compulsory third party bodily injury and death liabilities), dropped this year to 262.1% from 287.58% in 2011.
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Non Life market is little less concentrated among top 10 insurers with a combined market share of more than 60% in 2011. Allianz General Insurance Company (AGIC) leads the telly with premiums of around ~USD347 Mn in 2011, followed by MSIG Insurance with ~USD 328 Mn, Kurnia~USD 247 Mn and Tokio Marine with ~USD 205 Mn.
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To enhance financial inclusion by providing adequate levels of protection across all segments of the population
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To promote extensive use of the e-payment systems
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To further expand consumer education and protection
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To enhance talent development
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In relation to the Regulatory and Supervisory regime, to inter alia examine and monitor the impact of uplifting of price restrictions
The Blueprint charts a vision and direction for the Malaysian financial sector for the next ten years that will support Malaysia's long-term ambitions. To ensure the achievement of the desired outcomes, a robust implementation and monitoring framework will be put in place, including update on the progress of the implementation of the Blueprint. The Financial Sector Blueprint marks a new phase in the development of the financial system in Malaysia and was officially launched by Bank Negara Malaysia (BNM) on 21st December 2011. The blueprint with the theme “Strengthening Our Future” charts the future direction of the financial system over the next ten years. The success of the first financial sector master plan produced a financial system that is well-positioned to respond to the new imperatives in the economic environment. The financial institutions in Malaysia are well-capitalized and have improved risk management and governance practices in place. This is largely derived from the cumulative effects of building strong institutions, developing an efficient financial infrastructure and enhancing the regulatory and supervisory framework. In total, the Blueprint sets out 69 recommendations to achieve the vision of the financial sector by 2020. Some of the broad roles and areas to be addressed by insurers in the Blueprint are as follows:
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To support higher value added business activities and infrastructure investments
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To meet the needs of the changing demography
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To intensify the internationalization of Islamic finance through regional and global takaful/retakaful outreach
5.1 Financial Services Act 2013 The Financial Services Act 2013 (FSA) which came into operation on 30 June 2013 is a step in the right direction to strengthen the country's financial sector. The Act passed in the Parliament on 19th December 2012 is aimed at promoting financial stability, to strengthen regulation of financial institutions and to implement recommendations under the Financial Sector Assessment Program (FSAP). The FSA supports the existing risk and outcome focused approach to regulation and supervision and will adopt measures which are less prescriptive. It aims to promote clarity between standards, to promote sound risk management and governance
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arrangements and enhance the ability of BNM (Bank Negara Malaysia) to undertake early corrective and remedial action to address safety and soundness concerns. The Act also allows BNM to exercise its power to enforce civil or administrative sanctions on financial institutions on non-compliance.
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There will be a codification of board responsibilities to reflect specific responsibilities of the Board of Directors of a company which shall have regard to the interests of depositors or policy owners of the institution.
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The reporting obligation of the auditor will be expanded wherein the auditor will report to BNM if in the course of carrying out his duties he is satisfied that there has been noncompliance of standards, weakness in internal controls or the financial position of the institution is likely to be or has been materially affected by any event, conduct of activity or weakness of internal controls.
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The Act also stipulates specific business conduct requirements which will be specified by BNM to promote consumer protection through fair, responsible and professional dealings with customers. The Act also prohibits unfair or deceptive business conduct with less onerous pre-contractual duty of disclosure for the consumer. The interests of insurers are also protected in this instance with specific remedies for resolving non-disclosure issues.
Salient areas affecting insurers 1.
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Conversion to a single type of insurance business
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Prohibition on insurers (excluding professional reinsurers) to carry on both life and general insurance business.
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Composite insurers (excluding professional reinsurers) to convert to single insurance business to comply with Section 16 of the Act within 5 years from commencement date of the Act.
Restriction on payment of dividend
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Approval requirement for payment of dividends is streamlined across all licensed insurers.
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In considering applications for payment of dividends, BNM shall consider prevailing and respective financial conditions of licensed insurers, including ability to comply with any standards on capital adequacy.
Approvals are also required for appointed actuary, which has been extended to general insurance. The actuary will be required to meet the requirements, qualifications and perform duties as specified in standards. Approval from BNM will also be required for acquisition or holding of material interest in a corporation. In addition to approval requirement for establishment or acquisition of subsidiaries, licensed insurers will also be required to obtain approval for acquisition or holding of material interest in corporations.
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Approval for fit and proper requirements for key responsible persons with specific approval for appointment of Chairman. A key responsible person who no longer complies with fit and proper requirements shall immediately cease to hold office.
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There are also amendments to the automatic disqualification criteria for chairman, director, chief executive officer and senior officers of a company which are specified in the Act.
10. The Act will also accord a new power to BNM to approve a financial ombudsman scheme (FOS) for resolution of disputes and require financial service providers to be members of the FOS and issue regulations applicable to this body.
5.2 Competition Act 2010 Another major development which has a wide impact on business and operations of the general insurance industry is the Competition Act 2010 which came into effect on 1st January 2012. To ensure that the Association and its members are in full compliance with the Act, a Task Force had been set up specifically to identify potential areas in the operations of the Association and its members that will be affected by the Act. The Task Force with input from our legal counsel had identified various potential areas for example the practice of price fixing via the tariffs, information sharing, standard terms and conditions under insurance contracts and limiting, controlling production or market access which may be affected by the Act. With this information the Task Force had worked on designing a roadmap to address the key issues and identify long term solutions for the industry towards
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compliance with the Competition Act. In addressing these areas, the Task Force had kept in mind the liberalization of the insurance industry and the introduction of the Financial Service Act 2012. The roadmap developed does not incorporate infinite block exemptions but proposes a timeframe for which these exemptions are required from the Competition Commission as ultimately the intention of the insurance industry is to fully comply with the requirements of the Act. The draft roadmap had been adopted by the Management Committee of PIAM and will now be shared with member companies for their feedback before it is forwarded to the Competition Act Commission.
As at 31st December 2012, the number of registered general insurance agents was 35,354 which is a decrease of 0.7% compared to 35,611 in 2011.
In 2011, agents garnered 61% of the total business in comparison to other distribution channels of which about 9% of total business is acquired via motor vehicle franchise holders. This analysis indicates that insurance agents continue to play a significant role in the acquisition channels in this market
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Central Bank of Malaysia (Bank Negara Malaysia)
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General Insurance Association of MalaysiaPersatuan Insurans Am Malaysia (PIAM)
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Life Insurance Association of Malaysia (LIAM)
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International Monetary Fund (IMF)
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