According to PIAM, this positive momentum is accompanied by a significant contraction in underwriting profit, which declined by 38% 

MALAYSIA’S general insurance sector is experiencing a period of notable growth, with gross direct premiums showcasing a robust 7.3% surge, totalling a substantial RM10.5 billion in the first half of 2023 (1H23). 

According to the General Insurance Association of Malaysia (PIAM), this positive momentum, however, is accompanied by a significant contraction in underwriting profit, which declined by 38% to settle at RM0.5 billion. The intricacies of this dual narrative provide insight into the evolving landscape of the industry. 

Challenges in Motor and Fire Lines

The Motor and Fire lines of business are identified as primary contributors to the decline in underwriting profit. 

The Motor portfolio, constituting the largest share of the total premium at 44%, faced challenges as its underwriting loss increased by RM0.2 billion. 

This was attributed to the deterioration of Motor Claim experience, edging closer to pre-pandemic levels, coupled with rising prices of vehicle spare parts in Malaysia. 

Similarly, the Fire line of business encountered challenges affecting its overall profitability. 

Factors such as various flood events and escalating reinsurance costs contributed to the decline in underwriting profit. 

Despite an 8% increase in premiums, totalling RM2.11 billion in 1H23, the underwriting margin contracted to 26.8%. Inflationary pressures, tariff adjustments, intense competition, and increased flood events played their roles in shaping the dynamics of the Fire portfolio. 

Diverse Landscape of Premium Contributors

Motor and Fire lines continue to dominate as top premium contributors, with Motor maintaining its position as the largest line of business at a 44% share of the total premium. 

The commendable 8% growth in gross direct premiums, reaching RM4.6 billion in 1H23, showcases the significance of Motor insurance in the Malaysian insurance landscape. 

However, this growth was accompanied by an underwriting loss of RM54 million, with the net claims incurred ratio reverting towards pre-pandemic levels at 67.1%. 

The Fire line of business, despite an 8% increase in premium, faced a decline in profit with the underwriting margin contracting to 26.8%. 

The increase in premiums was partly attributed to the rise in residential and commercial construction activities, coupled with an increasing demand for flood coverage. 

However, inflationary factors, tariff adjustments, intense competition, and increased flood events played a role in shaping the profitability of the Fire portfolio. 

Beyond Motor and Fire, the Marine Aviation and Transit (MAT) classes of insurance, accounting for a 9% share of the total premium, recorded a deceleration in year-on-year (YoY) premium growth. 

In contrast, the premiums for Miscellaneous classes of insurance, constituting a 16% share of the total premium, displayed an upward trend. Notably, the Construction All Risk (CAR) and Engineering business premiums witnessed significant growth driven by the thriving construction sector, supported by the acceleration of major infrastructure projects post-pandemic. 

Challenges, Opportunities in Specific Lines

The Personal Accident (PA) line of business, constituting a 6% share of the total premium, witnessed a significant drop in premium by 15.5% YoY. 

This regression aligns with levels consistent with prior years (pre-pandemic) and is largely attributed to the conclusion of the Perlindungan Tenang Voucher (PTV) programme. 

Additionally, a potential continuous upward trend in the loss ratio for Travel PA may be observed beyond 2023, driven by the resumption of travel after a period of significant reduction and the commensurate surge in flight cancellations and delays due to staffing shortages for airline companies in some regions. 

Medical and Health Insurance (MHI) demonstrated a significant increase in year-on-year premium growth at 15.2% in 1H23, despite a smaller margin at 23.5% lower YoY. 

This underscores the growing importance of health-related insurance products and the changing dynamics of consumer needs in the wake of ongoing global health challenges. 

Flood Insurance Take-Up and Awareness

In response to rising flood events in Malaysia, there has been a positive upward trend in policyholders’ awareness regarding flood coverage. 

Notably, the 2022 flood events caused overall losses of RM622.4 million, translating to 0.03% of the country’s nominal GDP. 

The breakdown of losses highlighted the vulnerability of various sectors, including public assets, living quarters, agriculture, business premises, vehicles and manufacturing. 

This increased awareness is reflected in the rising take-up rate for flood optional coverage within Motor and Fire policies, with a 2% increase for both, reaching 14% and 33% respectively. 

Daily Claims Payout Dynamics 

The general insurance industry settled close to RM23 million daily on total insurance claims in 1H23, marking a significant increase of 23% from the full-year of 2022. 

Over the past decade (2013-2022), Motor daily claims payout represented the majority of total claims, averaging at RM16 million per day, constituting 70% of the total payout. 

The reversal in trend observed since 2020, with Motor daily claims payout increasing to RM13 million per day in 2022, continued in the first half of 2023, reaching nearly RM16 million per day- the highest even when compared to the pre-pandemic period. — TMR 

• This article first appeared in The Malaysian Reserve weekly print edition