Takaful business in Malaysia continued to gain ground in the insurance market during the 2020 pandemic, compared to conventional insurance business, according to Fitch Ratings.
The industry accounted for 38% of the domestic life insurance market in 1H2020 versus 34% in 2019, while general takaful accounts were stable at 16% of the overall general insurance market.
It faced low top-line growth last year due to a fall in new contributions under pandemic-related movement restrictions, the credit rating agency said.
Consequently, the contribution of family takaful to overall growth dwindled to 2% in 1H2020, against 25% in 2019, while general takaful contributions rose by only 0.6% from 20%.
Nonetheless, takaful growth remained steady compared with general and life insurance premiums, which shrank by 3.6% and 12.6% respectively, Fitch said.
The credit rating agency said that Malaysia’s takaful industry is likely to continue its steady growth this year thanks to government initiatives and a supportive Islamic finance ecosystem.
Other factors include strong economic growth, which the rating agency forecasts at 6.7% in 2021, increased digitalisation, higher awareness and a low life-insurance penetration rate.
Correspondingly, Fitch expects takaful penetration to keep rising, supported by government initiatives to provide financial assistance for the bottom 40% of income earners to purchase insurance and takaful coverage under the ‘Perlindungan Tenang’ scheme which is an initiative launched by Bank Negara in 2017 in collaboration with the insurance and takaful industry to provide microinsurance or microtakaful products to the unserved and underserved segments of the population.
Malaysia’s vibrant Islamic finance ecosystem includes Islamic banks, shariah-compliant corporates, Islamic fund managers and halal industries that also seek takaful products, where bancassurance is one of the main distribution channels.
Takaful demand arises from sukuk issuance, which makes up more than 60% of outstanding domestic issues and is often linked to projects and insuring the underlying assets.
Takaful firms can also invest their liquidity in diverse sukuk and other Islamic options, Fitch said. M