Ken Research has announced recent publication titled, "Life Insurance in Malaysia, Key Trends and Opportunities to 2020". The report provides a detailed outlook by product category for the Malaysian life insurance segment, and a comparison of the Malaysian insurance industry with its regional counterparts. It provides key performance indicators such as written premium, incurred loss, loss ratio, commissions and expenses, total assets, total investment income and retentions during the review period (2011-2015) and forecast period (2015-2020). It analyses distribution channels operating in the segment, gives a comprehensive overview of the Malaysian economy and demographics and provides detailed information on the competitive landscape in the country. It gives insurers access to information on segment dynamics and competitive advantages and profiles of insurers operating in the country. The report also includes details of insurance regulations, and recent changes in the regulatory structure with its impact on the growing economy.
We still see Malaysia as a key growth market in this region, with a few point climb on an average per annum in growth up to 2020. Diverse factors account for this positive push seen within the industry:
- The burgeoning upper middle class segment that is reaping the benefits of continued favourable economic conditions, as the government carries out initiatives to transform Malaysia into a high-income economy by the year 2020. This has underpin significant growth. This shall provide abundant opportunities for insurance in future as well. However, the industry itself is on the cusp of some major changes that may have potentially significant implications to the market.
- Bank Negara Malaysia (BNM), as the regulator of the industry, can be seen as one of the important harbingers of change to the industry. One of the significant legislation under the purview of BNM that came into force in 2013 was the Financial Services Act (FSA) 2013. FSA focuses on integrity, fairness and accountability of financial institutions, while trying to increase the protection of rights and interests of the consumer. This regulation resulted in the splitting of composite insurers, additional business conduct and consumer protection requirements to comply with, as well as the requirements that have implications to significant shareholders of insurance i.e. majority institutional shareholder of insurance came under the scrutiny of BNM and maximum permissible individual shareholding was seen as an outcome. More people invested in insurance agencies.
- Under the mandate from the Economic Transformation Programme (ETP) increased penetration and at the same time, ensuring insurance and intermediaries give good quality advice to consumers. Among the many game-changing ideas contained in this concept paper were liberalisation of commissions for investment-linked products (ILP) and pure protection products, the establishment of an online insurance product aggregator, the requirement for companies/operators to offer products directly to consumers, increased disclosures at point of sales and the requirement for a balanced scorecard approach in compensating distributors. All of this has provided the major kick-start and park to this secured, fruitful and developing industry.
- Outside of BNM, another major regulatory change instituted by the Malaysian government in the recent tabling of the Budget is the implementation of the Goods and Services Tax (GST). Another potential game-changer, the impact of the GST is unique to the life insurance industry, mainly because the supply of life insurance is GST exempt, so the purchaser of the insurance will not have to pay GST. This meant that the insurer would not be eligible to claim credit on input tax incurred for making these supplies. In other words, this will mean that commissions payable to distributors as well as expenses incurred (although excluding staff salaried expenses) will attract GST. This increased cost will erode the profit margins of insurers and this can only mean that eventually, the costs may be implicitly passed back to the policyholder in the form of either increased premiums or reduced benefits.
- The introduction of the Balanced Score Card improve the productivity and professionalism of insurance agents and in turn enhanced the brand representation and the charisma of the insurance industry, which augurs well for the industry to meet the Government's vision of accelerated growth by 2020.
- Moving away from the regulatory changes in Malaysia to demographic changes, Malaysia itself is facing a problem in the increasing retirement gap: that is, the gap between the actual financial positions of retirees against what they actually need to continue to live comfortably. An oft-quoted statistic states that the majority of Malaysians will and are exhausting their retirement savings (i.e. their Employee Provident Fund (EPF) savings) within three to five years of retiring. This leaves them in a tragic problem of being unable to provide for themselves as they are past the working age, while needing to meet daily rising costs, which is made all the more acute if they transpire any medical condition. However, the increase in retirement age recently to 60 years old to a certain extent will mitigate some of these concerns. The government has stepped in by introducing the Private Retirement Scheme. Tax incentives have been provided as well. However, slow growth in the sector is attributed to poor take-up rate due to the strict withdrawal conditions, low commission cap being a disincentive to distributors, as well as the perceived lack of security compared to the guarantees meted out by the EPF.
The support of alternative distribution channels will have a huge impact in expanding the reach and infiltration of insurance in Malaysia. The opportunities in the digital and direct channels, will not only improve transparency and enable easier product comparisons, but also increase the reach and diffusion of insurance among the new generation of consumers who are more educated and technology savvy. Agencies and bancassurance collectively accounted for 89.6% of the segment's new business written premium in 2015, while brokers accounted for the remaining 10.4%. Increasingly, we see companies are involving themselves in the social media space, and undergoing a re-branding to lifestyle and wellness companies, and not just a company that sells insurance. In addition, the increasing and unparalleled progress in technology allows insurers the chance to really reduce and simplify their offerings to the customer, with a handy approach allowing them the chance to connect and integrate themselves into the lives of customers instantly from anywhere. 2020 will be the times of change, and both insurers and operators alike need to be keenly aware of the changes they face from 2016 and beyond. The impact of the way they run their business and their overall strategy is moving forward. Nevertheless, it is worth noting that with change always brings opportunities. The healthy performance of the life insurance industry reflects the continued increase in awareness among Malaysians on the importance of insurance protection.
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Ankur Gupta, Head Marketing & Communications