Bank Negara Malaysia (BNM) governor Datuk Muhammad Ibrahim has urged financial institutions (FIs), especially the insurance industry, to “wake up from its slumber” and adopt new technologies to meet consumers’ demand or risk losing out.
Following the stagnant rate of life insurance penetration in Malaysia at 55% for the third consecutive year, Muhammad said the insurance industry needs to redirect its focus on nurturing talents, adopting new technologies and building trust with consumers as the industry’s growth potential remains significant.
“The industry appears to have reached a plateau yet Malaysia is far from being a saturated market,” he said in his keynote address at the 6th Malaysian Insurance Summit in Kuala Lumpur yesterday.
Muhammad said it is critical to make insurance and takaful accessible to consumers as increased penetration would ensure the industry’s sustainability over the long-term period.
He added that micro-insurance and micro-takaful should be further developed to improve access to lower-income groups.
In 2015, BNM set a target to increase the penetration rate to 75% by 2020. Industry leaders have since appealed that the government provide incentives to meet the target.
Suggestions include Goods And Services Tax relief for both life and medical insurance policies, as well as separating the existing RM6,000 tax relief for the Employees’ Provident Fund and life insurance into individual amounts.
Muhammad said BNM would support efforts to develop talent within the industry through the establishment of regional functions and centres of excellence by insurance and takaful operators to serve the regional and international market.
The industry must have a strategic focus to attract, retain and develop talents which could spur the industry’s growth, he added.
Muhammad said with more than 200 actuarial science graduates coming into the market annually, a healthy talent pipeline exists to support a whole range of functions from pricing to risk management in f inancing and financial reporting.
“The industry must do more to leverage this resource,” he said.
Muhammad also urged global financial institutions to address the trust deficit within the industry as lack of consumer trust has severe implications to business growth.
“Most consumers do not understand what they had purchased. Insurers are chasing the same group of customers which result in intense competition that gives rise to poor sales practices,” Muhammad said.
A report by BNM in 2012 found that poor sales practices and behaviour stemmed from the promotion of more complex products with higher expected returns without considering whether the products are suitable for the targeted consumer.
Muhammad said insurers need to design simple products that people needs and wants to buy in order to affirm society’s trust in the industry.