Malaysia remains a largely an untapped market with only 54% of Malaysians having any form of life insurance or Family Takaful policy. The 2010 Family Takaful mix in Malaysia was heavily concentrated in mortgage related products, accounting for 51% of new business contributions. Medical, health and annuity remain the underserved sectors contributing to only 9%, 13% and less than 1% respectively in 2010.
Family Takaful continues to represent the main growth driver in the Malaysian insurance market, showing average annualized growth rates of approximately 28% between 2005 and 2010. Family Takaful products currently dominate the Malaysian market with a share of 78% in net contributions.
The progress of the Malaysian Takaful market is currently underpinned by the country’s growth as a whole. The country’s rising influence and its strong growth fundamentals have allowed Takaful to emerge from its infancy. As a global snapshot, the numbers of the entire Takaful industry are small. However, the growth rates in the Takaful segment remain consistently high.
While the industry as a whole remains poised for growth, certain issues still remain. For example, Takaful continues to take the route of least resistance; continually replicating conventional products; lack of innovation and its future success will depend on the development of products that are tied to the consumer’s economic, social and political needs.
Emerging market growth
The emergent and affluent segment of the emerging economies will be central to sustained growth of the Takaful industry as the savings potential of this customer base grows.
The global Family Takaful segment is where current growth resides. This growth will begin to spread across underserved areas of Family Takaful, primarily medical Takaful. This is simply because there is pent up demand for such coverage and very few products are available in the market to meet this requirement. Household linked Takaful, group medical and education plans are also significantly underserved.
Part of the underlying growth originates from the increasing consumer awareness for Takaful and insurance related products with target groups for Takaful looking increasingly to their savings and earning potential.
While uncertainty can create awareness for the need of Takaful, it is the political and economic stability that is key to providing sustainable growth. Future economic growth should prove a boon to the Takaful industry with increasing income driving uptake and necessitating more sophisticated products and higher value added services and activities.
Takaful uptake is primarily determined by the following factors: income level, the number of dependents, education, social security, urbanization, life expectancy, pricing and the level of personal savings. It is only when these factors align that uptake is guaranteed and Takaful penetration can develop to its true growth potential.
Strong growth opportunities do remain within the underserved segments of the Family Takaful business. Capturing the growth demand for more customized products and services is also central to the future growth prospects of Family Takaful through investment linked and wealth management products that target an increasingly affluent customer base. Malaysia’s rising demographic profile should help the growth of these underserved segments of Family Takaful.
The Takaful industry also needs to be able to adapt to changing demographics, the rising cost of medical services and a rapidly aging population. Total medical expenditure will increase and supporting sustainable healthcare and retirement requirements will become of increasing concern to the population at large.