This article first appeared in The Edge Financial Daily, on November 4, 2015.
KUALA LUMPUR: Malaysia’s takaful industry grew at a faster rate than conventional insurance, recording a compound annual growth rate (CAGR) of 12.4% in the last five years and outperforming the conventional insurance’s CAGR of 7.8%.
Malaysian Takaful Association chairman Ahmad Rizlan Azman said takaful contributions last year were RM6.3 billion, accounting for a 13% share of the total insurance market. The conventional insurance segment contributed RM42.5 billion.
“With Malaysia’s low insurance penetration rate of 5.2% of gross domestic product (GDP) in 2014 and its young demographics, significant market growth opportunities are yet to be tapped by its insurance and takaful sector,” Ahmad Rizlan said at the launch of the Malaysian Takaful Dynamics report on the sidelines of the 11th World Islamic Economic Forum yesterday.
The jointly developed report by the Malaysian Takaful Association and Ernst & Young (EY) Malaysia is the country’s first central compendium on Islamic insurance.
Ahmad Rizlan said the low penetration rate of takaful in the country is due to a lack of awareness about takaful-related products as well as the issue of affordability, especially among low-income groups.
“We will need to figure out innovative ways to penetrate the underserved market for takaful-related products, although the lack of takaful policyholders is also due to the spending choice of consumers.
“For most, it is not that they cannot afford it, and this is where the awareness in terms of planning for incidents comes in. We are doing so through agency force, but they have a tendency to focus on the value of protection, as they get commission based on it,” he told The Edge Financial Daily after the launch.
Ahmad Rizlan added that the low penetration rate is more of a behavioural challenge that needs to be addressed, in order to tap into the growth area in the bottom-40 segment.
“If you look at the statistics in terms of growth, between the value of policy and the number of policyholders, the former is growing three times faster than the latter.
“This suggest that the growth rate is really coming from the middle segment and above. What we want to see is more policyholders,” he said.
“We believe that a growth rate of 12% to 13% for the takaful market this year is possible, despite a slowing economy,” Ahmad Rizlan added.
EY Malaysia partner Brandon Bruce Sta Maria said over the medium to long term, the growth potential for the takaful industry will be dependent on its ability to tap the underserved market and enhance consumer awareness of takaful.
“The protection gap statistics provide a sobering view of the state of individual coverage in Malaysia, but therein lies significant upside potential for takaful operators to explore,” he added.
Malaysia currently holds 76% takaful market share in the Asean region, while Saudi Arabia contributes 55% of global gross takaful contributions, according to the Malaysian Takaful Dynamics report.