Malaysia’s takaful market is expected to receive a boost as the government of the Muslim-majority nation seeks to improve access to insurance and increase penetration, according to a report by Fitch Ratings.
The greater adoption of technology, especially in distribution, will help takaful operators reach untapped segments of the population, including younger consumers.
The growth of the Islamic insurance sector even outgrew that of conventional insurance during the first half of 2018, Fitch noted. Family (life) takaful grew by 12.9% in the period, while general takaful grew by 7.1%. By comparison, the conventional insurance sectors grew 5.4% for life and 0.9% for general.
Takaful’s market share is also growing, with family takaful accounting for 32% of the overall life market, based on new business premiums, in the first half of 2018, up from 30% the previous year.
Fitch also lauded the split of composite licences into separate ones for family and general takaful operations, saying the higher capital requirements encourage increased business focus, with firms optimising returns on the increased capital deployed.
However, the coming implementation of IFRS 17 and related changes will pose a challenge to takaful operators, similar to its effects on the broader insurance industry.
“The changes may put pressure on profitability in the short term, but will promote product innovation, healthy competition and growth in the long term,” the report said.