Malaysia Insurance Industry

The life insurance industry achieved an impressive growth in new business premiums of 36.3% in 2004 in contrast to the 35.4% in 2003 only due to the continued strong demand for investment-linked and endowment products.

Bancassurance increased its market share of new life business significantly during the year to account for 48% (2003: 38.4%), or RM3,172.9 million, of total new business premiums generated. This has resulted in a more diversified distribution system for life insurance products and contributed towards efficiency gains.

Net operating results in the life sector continued to improve in 2004. Boosted by strong new business growth, excess of income over outgo increased, albeit at a slightly slower rate, to RM10,978.1 million.

In tandem with the slower increase in excess of income over outgo during the year, total life insurance fund assets correspondingly grew at a slower rate of 16% (2003: 17.6%) to RM69,814.7 million in 2004. The bulk (49.6%) of investments of the life insurance funds continued to be in corporate and debt securities, with a higher share of 31.8% (2003: 30.8%) invested in longer term papers with maturities exceeding five years to better match the long term liabilities of life insurers.

Market penetration, measured in terms of total number of annual premium policies in force to total population, continued to improve steadily to 37.9% in 2004 (2003: 36.8%). With the domestic economic outlook remaining positive supported by strong consumer confidence and sustained private consumption activity, the life insurance industry is poised to benefit from further growth in demand for life insurance.

Growth in the general insurance industry moderated in 2004 to 4.2% with a total of RM8,532.5 million in gross direct premiums written during the year (2003: 9.9% totaling RM8,186.3 million). The slower growth was largely attributed to the continued softening of premium rates especially in Marine, Aviation and Transit (MAT) class in line with international rate trends, as well as weaker demand in commercial insurance lines. The predominant motor insurance sector rebounded, however, to register a stronger growth in gross direct premiums written of 6.7% in 2004 (2003: 5.6%) following robust motor vehicle sales. Reflecting the weaker overall growth, total assets of the general insurance funds grew at a slower rate of 2.5% (2003: 7.4%) to RM17,033.8 million

The much awaited and much Contradictory Health Insurance in Malaysia has come to an end after the declaration by the health minister. Health Minister Dr Chua Soi Lek announced that”8 million Malaysian workers (presumably in the private sector) will have to pay the premiums; those who are exempted include one million civil servants, 200,000 disabled persons, 435,000 pensioners, 250,000 hardcore poor and an unknown number of unemployed individuals. Thus, it appears that the biggest burden will be borne by lower and middle-income private sector employees.”

Presently the Government is more serious on Health Care System.There is an improvement in health care system which was “achieved through a network of general hospitals, district hospitals, polyclinics, health centres, midwife and mobile clinics, which enabled Malaysia to provide comprehensive, accessible and affordable health care to the vast majority of the population, including remote rural communities”. The World Health Organization (WHO) cited the Malaysian health care system as a model for other developing countries to follow. An IMF health economist said, “the Malaysian model of health delivery may constitute an effective instrument for redistributing income in developing countries.”

It is seen that an insurance-like scheme with the premium(s) being community rated, means everybody will pay the same premium to the new Skim Insuran Kesihatan Kebangsaan (SIKK), regardless of age or pre-existing conditions.

SIKK covers mainly how much one have to pay. For example, there could be a basic package, a gold package, a platinum package etc. Perhaps, if you purchased a platinum package, you could choose your own specialist at a hospital of your choice whereas the person with a basic package may only be treated at a pre-designated hospital.

For the year 2003, the estimated total spending on health care amounted to RM13.0 billion (government – RM8 billion and private sector RM5 billion). Given an average family size of 5.4 members per family, Malaysia with its population of 25 million will have about 4.63 million families. Thus the average expenditure per family will amount to RM2, 808 per year (RM13.0 billion divided by 4.63 million families). In other words, each family will have to pay about RM235 per month.

Export Insurance In Malaysia

There are two types of insurances for exports in Malaysia. They are Cargo Insurance operated by private marine insurance companies and the Export Credit insurance Scheme operated by a governmental insurance corporation, Malaysia Export Credit Insurance Berhad (MECIB).

Cargo Insurance

It is to insure cargo, which is transported by ships or airplanes against risks such as sinking, stranding, collision, fire, etc. Usually the risks of war and strikes are not covered unless there is a special arrangement.

If the exporter agrees to trade on CIF or C&I terms, the risk is borne by the importer at the point of lading on board the vessel. However, the exporter has to bear the cost to insure the goods and send the insurance policy to the buyer usually through the banks The insured amount should be 110% of the CIF value of goods.

As a general rule, when applying for insurance, the exporter may apply only when the amount of goods to be shipped, and the name of the ship to be laden are determined. If the description of the goods, date of shipment and the name of carrier has yet to be determined, the exporter can first apply to insure on a temporary basis and change it to be definitive at a later date.

Export Credit Insurance Scheme

The idea of the Export Credit Insurance Scheme is to protect the insured exporter for a small premium against unpredictable or other events beyond their control, which prevents the payment of exports by the buyer. Malaysia Export Credit Insurance Berhad (MECIB) operates these schemes. MECIB is owned by Bank Industrial Malaysia Berhad (BIMB) which is 100% owned by the Malaysian government. Its main objective is to promote Malaysia's exports by protecting the exporters from commercial and political risks and to promote increased participation from the commercial banks in export financing, and the mobilization of funds for export purpose.

Policy measures for the insurance industry in 2004 continued to focus on strengthening the foundations for sound financial and business practices.

During the year 2004, Bank Negara Malaysia released details of the proposed risk-based capital framework which replaces the current solvency regulations adopted for insurers.

As part of the efforts to safeguard the integrity of the financial sector from money-laundering activities, minimum verification procedures were established for insurers and brokers to ensure the legitimacy of insurance transactions entered into.

To further promote performance improvements in the industry, the development of bancassurance was taken further forward with the review of regulatory requirements relating to bancassurance arrangements. The revised requirements include more flexible commission structures while ensuring that consumers benefit from the lower distribution costs associated with bancassurance.

Efforts are undertaken by Bank Negara Malaysia to promote the fair treatment of policy owners, guidelines on bonus revisions etc.

Insurers are also required to strengthen internal control mechanisms to detect and curb the replacement of policies, which can result in financial losses to policy owners.

 In the general insurance sector, the implementation of JPJ eINSURANS in January 2005 which facilitates the electronic submission of motor cover notes to the Road Transport Department for the purpose of road tax renewal will also serve to protect vehicle owners and accident victims by effectively eliminating the incidence of forged cover notes.

Going forward, Bank Negara Malaysia will continue to provide a framework for positive change by promoting greater competition within the domestic market, while strengthening the supporting framework to ensure that insurers continue to develop disciplined internal approaches to risk management and corporate governance.