Although some economies in Asia continue to be affected by COVID-19, the Takaful industry has improved in 2021 and grown impressively in the first half of the year. Thereby, it has benefited from increased awareness about the benefits of Takaful and continued acceleration in digitization.
Review of 2021
The General Takaful industry in Malaysia grew by 13.6% in the first half of the year with a gross written contribution of RM1.86 billion (US$447.68 million) maintaining a market share of 15.5%. This impressive growth ratio is partially due to the fact that the industry was severely affected by COVID-19 in the first half of 2020.
It is good to see that the industry growth ratio has almost bounced back to the pre-COVID-19 level of 18.8% in 2019. As a result, the General Takaful industry in Malaysia should be able to surpass 2020’s gross written income of RM3.46 billion (US$832.79 million).
At the same time, the net claims incurred ratio of the industry has reduced in the first six months of the year by 1.5 percentage points compared with 2020, from 53.3% to 51.8%, which can be attributed to the COVID-19 partial lockdowns which occurred during the first half of the year. This led to a slowdown in public transport and postponements of medical treatment. However, as the situation continues to normalize, it can be expected that the loss ratio will increase again.
Further, the year-on-year growth of 46.7% for the Family Takaful business in Malaysia to RM4.68 billion (US$1.13 billion) is driven by the significant increase in the single contribution (+37.6%) and annual contribution (88.6%) businesses.
As a result, Family Takaful could further increase its market share with regards to new business contributions to 36.7%. In Indonesia, the Takaful sector continued to grow as gross contributions soared 51.9% compared with a year ago to IDR11.55 trillion (US$809.34 million) in the first six months of 2021. With this, it increased its market share in the first half of the year from 6.5% to 8.7% compared with a year ago. After a slowdown of regulatory activities due to COVID-19 in 2020, this picked up again in 2021.
In Malaysia, Bank Negara Malaysia issued, among other new regulations, new guidelines relating to climate change (eg Climate Change and Principle Based Taxonomy) and has come up with an exposure draft for a revised Risk-Based Capital for Takaful (RBCT) framework.
Both regulations will have an impact on the Takaful industry. In Indonesia, the spin-off requirements by 2024 are still going ahead and the preparation for the upcoming implementation of IFRS 17 is continuing across the region.
Preview of 2022
To maintain its growth momentum and to bring Takaful to the next level, the Malaysian Takaful Association (MTA) has come up with several key themes for the new year as follows:
1. Implementation of value-based intermediation for Takaful (VBiT): In June 2021, the MTA launched the VBiT framework whose main objective is to deliver a positive socioeconomic impact while sustaining profitable returns for industry players. To achieve these ambitious goals, it will be important for the MTA to ensure that the framework is implemented by various member companies.
2. Financial resilience/inclusion: The aim is to broaden financial inclusion whereby more Malaysians can participate in Takaful plans in an efficient and safe way. A case in point is the recent launch of the Perlindungan Tenang voucher initiative which is supposed to broaden in 2022.
3. Digitization: There will be continued efforts in respect of digitization with the aim to provide secure, low-cost and contactless tools to individuals and businesses which have become critical under the pandemic.
4. Halal ecosystem: The goal is to complement the Halal sector with Takaful solutions as part of the Halal ecosystem, which is developing rapidly throughout the world.
While these key themes apply to other Takaful markets as well, there are some specific aspects in other countries which need to be considered in 2022.
Until now, only a few Takaful window operations have done so even though the deadline to submit the revised spin-off plans was in the middle of October 2021. There are plans for General Takaful operators to become part of the State Property Insurance Consortium which should promote the growth of General Takaful in Indonesia which has been struggling in the past few years.
Other structural challenges will need to be addressed in Indonesia such as developing an Islamic finance ecosystem that supports Takaful operators, attracting adequate capital, strengthening the regulatory framework and raising awareness of Islamic finance products.
Besides Brunei — where Takaful already has a majority market share — Takaful has started to make inroads in other countries in the region as well such as the Maldives, Sri Lanka and Thailand.
As some of them are Muslim-minority countries, it is up to individual companies to continue pushing the Takaful agenda as they cannot count on regulatory support.