Takaful prospects bright in Malaysia and Indonesia

| 22 Jan 2019

Malaysia's takaful segment will benefit from the government's push for affordable insurance and higher insurance penetration, particularly as Muslims dominate the country's population, while Indonesia's takaful industry is expected to benefit from developments in the broader shariah ecosystem over the long term, according to Fitch Ratings.


In its report, "Malaysia Takaful Dashboard 2019", the international credit rating agency says that greater adoption of technology—particularly in distribution—will be important for operators to capture the untapped population segments and younger consumers with greater cost-effectiveness

Family and general takaful business expanded by 12.9% and 7.1%, respectively, in 1H2018, faster than the 5.4% and 0.9% in life and general insurance. The sector continues to gain share in the domestic insurance market—family takaful accounted for 32% of the overall life market, based on new business premiums in 1H2018 (2017: 30%).

Fitch also says that the recently concluded spilt of composite licences into separate ones for family and general takaful operations is positive for the overall industry, as the higher capital requirements encourage more of a business focus, as management seeks to optimise returns on the increased capital deployed.

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The imminent introduction of IFRS17 and the operational changes it entails represent another challenge for takaful operators and 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.

Malaysia ranks among the top three takaful markets in the world.


In its report "Indonesia Takaful Dashboard 2019", the international rating agency says that total takaful contributions increased by a modest 1% to IDR9.7trn ($935m) for the first nine months of 2018.

“But we expect takaful growth to regain traction as new operators and investment capital enter the market and travel insurance is made mandatory by the government for Umrah and Hajj trips,” the report said.

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The family takaful sector continued to expand faster than non-life shariah on rising incomes, helped by low insurance penetration, high saving rates and a flourishing middle-income population. Family takaful contributions increased by 2% to IDR7.7trn in the first nine months of 2018, mirroring growth trends of conventional insurance business in the country.

Currently, takaful windows at conventional insurers outnumber fully fledged shariah operators, although a handful of companies have spun off their takaful windows ahead of the financial services regulator's requirements for all conventional insurers to do so by late 2024.

Takaful operators, and the insurance industry in general, are also preparing for the imminent introduction of IFRS17, with government support remaining important for a smooth transition.

This first appeared on Middle East Insurance Review, a sister publication of Asia Advisers Network.