Takaful to moderate on tariff liberalisation and slower economy


THE takaful industry is expected to expand at a moderate pace, with a projected growth of between 6% and 7% in its general segment in 2019, according to RAM Rating Services Bhd.

The credit rating agency said the takaful industry’s growth is also expected to be affected by the progressive impact of tariff liberalisation and the moderating global economic growth.

RAM Rating also foresees a stable outlook for the Malaysian takaful industry in 2019.

“With the progressive impact of tariff liberalisation and moderating economic growth, general takaful contributions are expected to expand at a slower 6% to 7%,” it said in a statement yesterday.

RAM Rating said the motor and property segments would likely experience limited growth due to the curtailed advantages previously offered by the insurers.

“In the previous environment of fixed pricing, the unique ability of general takaful operators to offer cashback incentives from the takaful fund surpluses was a source of product differentiation.

“This competitive advantage has been curtailed with risk-based pricing, as all general insurers and takaful operators can now offer upfront reductions of premium or contributions for ‘favourable’ risks,” the agency said.

It added that the growth of family takaful, the industry’s new business, is expected to decelerate between 7% and 9% this year due to the weaker consumer sentiment and the concern of rising cost of living.

However, RAM Rating said the moderation of the industry would likely be mitigated by the near-term demand, coupled with the government’s health insurance coverage, which is expected to promote individual protection plans.

“The recently announced national health protection scheme, mySalam, which provides takaful coverage to the bottom 40% income group, may act as a catalyst for future purchases of individual protection plans.

“The family takaful penetration rate is currently low — at about 15%,” it said.

Last year, the general takaful contribution rose 8% to RM2.8 billion, which was heavily contributed by the motor segment.

“All of the major business lines charted growth as the motor segment took the lead with 13.4% growth, followed by the medical and personal accident coverage with 7.3% and fire plans with 1.4%,” RAM Rating noted.

RAM Rating said the family takaful segment grew 13.1% to RM4.9 billion in 2018, contributed by the regular family insurance products.

“Spurred by the growth of ordinary family products, the family takaful’s contribution increased by 13.1% to RM4.9 billion in 2018.

“However, the sector’s profitability was affected by the soft investment conditions,” it said.

The takaful sector represents 17% of the combined insurance and takaful segment’s total premiums and contributions in Malaysia.

As at end-June 2018, the combined general and family takaful sectors’ capital adequacy ratio stood at 227.5%, comfortably sitting above the minimum regulatory requirement of 130%.