Rural Malays Targeted as Islamic Insurance Forecasts 10% Growthby
Micro-takaful market, commercial liberalization major drivers
Government seeking to boost penetration to 75% by 2020
Malaysia’s Islamic insurance industry is set to double its growth rate this year as companies focus on selling cheaper policies in rural areas, according to the nation’s takaful body.
The number of policies will rise 10 percent to 5.05 million in 2016, compared with 4.3 percent growth in 2015 and a 1 percent estimated expansion of non-Islamic business, Ahmad Rizlan Azman, chairman of the Malaysian Takaful Association, said in an interview in Kuala Lumpur. Insurers entering the micro-takaful market and the liberalization of commission structures are the biggest drivers, he said.
Around a quarter of Malaysia’s 31 million people live outside of cities and government efforts to boost the insurance penetration rate to 75 percent by 2020 from 55 percent are supporting demand. Companies offering Shariah-compliant policies look set to benefit disproportionately as most rural Malays are Muslims.
“Growth prospects still remain positive just by the virtue of the fact that the takaful base is smaller relative to overall insurance industry,” said Ahmad Rizlan, who is also chief executive officer of Etiqa Takaful Bhd., Malaysia’s biggest Islamic insurer.
Takaful is based on mutual assistance, where policy holders contribute a sum of money to a common pool managed by a company. The funds are used to pay for claims and any excess is returned to customers. Shariah law prohibits the payment of interest and embraces both profit- and risk-sharing.
There were 12.56 million non-Islamic insurance policies in Malaysia at the end of 2015, according to data from the association. Growth in takaful has pulled back from as fast as 8.3 percent in 2013.
This is due to the “slow expansion and development of agency distribution and the lack of awareness and understanding about takaful among consumers and their unwillingness to make the switch from conventional,” said Mohamed Hassan Kamil, group managing director of Syarikat Takaful Malaysia Bhd. in Kuala Lumpur.
The industry needs to improve distribution channels if it’s to meet it’s goal of increasing the number of takaful policies to 8.5 million by 2020, said the association’s Ahmad Rizlan. A new set of rules on commissions and allowing sales without advisory requirements will make achieving the target easier, he said.
“The introduction of the new framework is anticipated to boost the penetration rate,” said Syarikat Takaful’s Mohamed Hassan. “There is plenty of room for organic growth.”