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2014 Outlook for the general insurance sector

Feature article by The Star
2 December 2013
Kuala Lumpur


1) What is the outlook and prospect of the insurance sector for 2014? Will it be better than 2013? Explain.

The insurance industry continues to perform an increasingly important socio-economic function in Malaysia.  Progressively, the industry expects market conditions to evolve to reflect broader-based competition and a principle-based regulatory regime which modernizes the laws that govern the conduct and supervision of financial institutions.

Several regulatory measures like the Financial Services Act, 2013 and the Islamic Financial Services Act, 2013 have come into force this year.  With the development of a comprehensive regulatory and supervisory framework for the insurance industry and a more competitive insurance market, another important structural adjustment that the regulator is looking at is the review of the existing costs controls that are applied to life and general insurers.

The industry is directing its efforts to ensuring a firm foundation for orderly transition into this new and challenging environment.  Towards this end the Malaysian laws will place insurance companies on a platform readied by Bank Negara Malaysia for advancing forward as sound, responsible and responsive insurance companies.

2) What are the factors that will drive the growth of the sector next year? Explain.

The priorities are for the industry to be more competitive, make significant changes to raise performance standards in tandem with global advances and keep pace with the established international best practices on underwriting performance, improving claims costs ratios, enhancing productivity and reducing distribution costs. With the liberalization coming in the next few years, operating beyond the limits of what is currently practiced with a diversified delivery/distribution channel and strong market conduct practices is paramount.

The industry will also have to deliver a more positive customer experience and should not compromise on the level of customer standards.  Further, with the global challenges stepping in, the requirement of a more skilled professional workforce to support the demand for complex products and sophisticated customer demands will be important.  The insurance industry will have to change its approach on attracting talent as only by attracting the right talent will the industry be able to prosper.

3) Projections of growth (in new biz premiums etc.) in the insurance sector for 2014? Explain.  

For the years 2010, 2011, 2012, the general insurance industry’s gross premium rates increased by 8.5%, 7.8% and 8.2% respectively.  Although the figures for the year 2013 are not available yet, the industry anticipates a growth of at least 7% to 8%.

It is to be noted that as at Q3 2013 the insurance industry remained resilient with strong capitalization.  The capital adequacy ratio for the insurance industry stood at 220.7% (end-2012: 222.8%) with a capital buffer of RM22.9 billion. The impact of adverse developments in Europe remained well contained due to the minimal direct investment abroad and manageable reinsurance exposure.

For Q3, 2013, the general insurance sector remained stable with an operating profit of RM1.44 billion attributed to a higher premium income and lower claims ratio (January – August 2012: RM1.40 billion). Gross direct premiums grew 6.8% to RM11 billion, mainly from motor and aviation businesses, with the motor business contributing 46.1% of total gross direct premiums.

The general insurance industry expects a similar trend in 2014 as consumer awareness on the benefits of insurance coverage increases and there is demand for more sophisticated products which will result in an increase in market penetration.  With insurers focusing on positive customer experience, consumers will not shy away from purchasing an insurance product offered to them by an insurer with a trusted brand and excellent after-sales service.

In addition, the general insurance industry will also benefit from the current ongoing projects in Malaysia like the LRT and high speed rail between Malaysia and Singapore with demand of Workmen’s Compensation Insurances and CAR and Engineering classes.  Stronger demand is also expect for Medical and PA which has been in tandem with the rising per capita income of Malaysians.

4) Do you expect to see more mergers and acquisitions (M & As) in 2014? Explain.

One of the provisions in the Financial Services Act, 2013 is that a licensed insurer, other than a licensed professional reinsurer, shall not carry on both life and general insurance business.  This is a case where currently composite insurance companies hold a combined general and life insurance license.  These companies have been requested to convert their businesses to a single license which will result in them either holding separate funds for both the licenses or they may release/terminate one license.  Companies concerned have been given a time frame of 5 years from the effective date of the Act that is 30th June 2013 to make this change.

This new requirement may see some changes in the shareholding of companies i.e. the acquisition of licenses/business (either general or life) which are for sale or release of business/licenses by a composite company to other interested companies.  Such mergers or acquisitions will be driven by market players’ interests in a particular group of business.

5) The trends in the sector etc. Explain.

As explained in Q3 above.

6) The hurdles and challenges in the insurance arena next year? How can the impact (of the challenges) be minimized?

As explained in Q1 and Q2 above.

7) Relevant comments   

The Financial Sector Blueprint (2011-2020) and the Capital Market Masterplan 2 (2011-2020) are expected to continue to drive the development of the domestic financial sector.  As the country transitions towards a high value-added, high income economy, the financial sector will play a key role in spurring new areas of growth and facilitate the economic transformation.  In this regard, a critical success factor is ensuring the supply of a highly skilled talent pool.

About the General Insurance Association of Malaysia (PIAM)

PIAM is the national trade association of all licensed direct and reinsurance companies for general insurance in Malaysia. Currently, PIAM has 29 member companies. More information on PIAM can be obtained from its Web site: