Digital platform to drive takaful demand

Takaful operators and providers should rethink and re-strategise the way products are positioned to entice a larger crowd, says Fitch


MALAYSIA has firmly established itself as an Islamic hub in the world through leadership and innovative product offerings in the niche industry.

While most of the success in the Islamic financial realm owed to the government has created a comprehensive legal and regulatory framework, commercial banks and Islamic financial institutions are the ones that have completed the Islamic financial system, operating in parallel to the conventional system.

As such, the creation of an Islamic finance-enabling ecosystem is the key driver of the Malaysian takaful industry’s growth.

“This makes Malaysia a leading model for the sector, especially in light of the Muslim-dominated make-up of the untapped population segment,” said Fitch Ratings Inc in its latest report on Malaysian Takaful trends and outlook for 2020.

“Increasing product awareness is also a factor towards improving market penetration, as almost half of the Malaysian population does not have protection due to a lack of awareness on the comprehensive range of solutions offered by the takaful industry,” said the rating agency.

The takaful sector continues to enjoy faster growth than the conventional insurance sector, driven by stable domestic consumption and increasing consumer awareness.

Family and general takaful premiums rose by 29.6% and 16.4% respectively in the first half of 2019 (1H19), compared to 12.2% in conventional life and -1.3% in general insurance.

The takaful sector also continues to gain share in the domestic insurance market with family takaful accounting for 35% of the overall life market based on new business premiums in 1H19 (2018: 32%).

General takaful accounts for 16% of the overall general insurance market (2018: 14%).

But takaful’s penetration is still far too low despite a Muslim population of more than 60% and a burgeoning middle class in the country.

The Bank Negara Malaysia’s Financial Capability and Inclusion Demand Side Survey showed almost half of the Malaysian population does not have protection due to a lack of awareness on the comprehensive range of solutions offered by the industry.

Fitch said takaful operators and providers should rethink and re-strategise the way these products are positioned to entice a larger crowd looking for general protection through the use of the digital application.

“The increasing use of digital applications can also be a growth catalyst for the takaful industry. Virtual or peer-to-peer takaful providers that are tech-enabled may allow takaful companies to provide services at a lower cost, and be more flexible and customer-centric while also penetrating new areas,” said Fitch.

Both commercial and cooperative banks that operate their own takaful products have incorporated the use of technology in their products.

Bank Kerjasama Rakyat Malaysia Bhd, for instance, recently launched the takaful digital online enrolment via the QR codes as part of the bank’s initiative to embrace the digital and technology advancement.

“We have collaborated with Etiqa General Takaful Bhd which is the key player and pioneer in providing the digital solution in the industry. Through this partnership, we aim to offer great customer experience by enhancing the effectiveness of our delivering process via the digital platform as part of our strategy to gain more millennial customers,” said the bank’s newly appointed CEO Datuk Rosman Mohamed (picture).

The total family takaful business in force contribution also grew 11.8% year-on-year to RM4.86 billion in 2018, with 4.96 million certificates of business in force, up 4.6% from 4.74 million in 2017.

The general takaful industry registered a decent growth of 8.9% with gross contribution totalling RM2.79 billion compared to RM2.56 billion in 2017.

Fitch added that the removal of limits on commission and agency expenses for investment-linked takaful products, which came into effect in January 2020, will provide flexibility for takaful operators to manage their operating expenses and encourage greater competition.

Nevertheless, takaful companies continue to face uncertainty over the interpretation and application of the International Financial Reporting Standard (IFRS) 17 to their business as the implementation deadline of January 2021 draws nearer.

The selection of measurement models and treatment of various funds will have to be resolved.

IFRS is a new accounting standard that insurance providers must adhere to come January 2021, that will require fundamental accounting changes on profit realisation from the insurance contract.