Takaful Industry in Malaysia

Takaful is a fast growing industry in Malaysia and globally. Many organisations had invested significantly in this sector to ensure that they have a piece of the pie whilst things are still hot. In Malaysia, there are currently 9 takaful licenses had been issued by Central Bank of Malaysia to run takaful business. Namely, Syarikat Takaful Malaysia (1984), Takaful Nasional Sdn Bhd (1993), Mayban Takaful (2001), Takaful Ikhlas Sdn Bhd (2003), Commerce Takaful (2005), HSBC Amanah Takaful (2006) and BSN Prudential Takaful (2006) whilst Hong Leong Takaful and MAA Takaful had yet to commence their business operation. Out of those in business, Takaful Ikhlas is the only takaful operator without a financial institution within it's group where it is wholly own by a domestic reinsurance company, namely MNRB Holding Bhd. Below are the stakeholders from the banking sector related to takaful operator:
1. Bank Islam Malaysia Berhad (Syarikat Takaful Malaysia)
2. Mayban Fortiss (Takaful Nasional Sdn Bhd & Mayban Takaful)
3. CIMB (Commerce Takaful)
4. HSBC Bank (HSBC Amanah Takaful)
5. Bank Simpanan Nasional (BSN Prudential Takaful)
6. Hong Leong Bank (Hong Leong Takaful)

With a financial institution within the group, the takaful operator has better opportunity to synergize their resources to optimize business opportunities amongst captive market thru cross selling. This is a trend seen globally which is known as bankatakaful or bancassurance in the conventional sector. We will discuss further on the opportunities available in the bankatakaful under specific topic of bankatakaful within this blog.

When the first takaful commenced business in 1984, the authority had set RM10 million as the minimum paid up capital. Today, however, the minimum requirement had increased 10 times to RM100 million mainly to ensure that the solvency margin of the operator is always met without much difficulties. As for the shareholding structure, there is no specific guidelines set by Central Bank provided that they meet with the minimum requirement on the capital and perhaps with significant local interest in the entity. We can notice that the investors are broadly from private investors, banking, insurance as well as reinsurance company.

The authority is gearing their monitoring and regulation on takaful industry to ensure that the operators are ready to face with stiffer challenges upon new foreign players involvement. New technologies and marketing strategies are introduced by those players leading towards higher market penetration and retention. Local players, therefore, are expected to change their business plans and strategies mainly to ensure that they are always versatile to changes in tandem with market needs and expectations. Furthermore, the Government had set all the necessary infrastructure to position Malaysia as the Islamic financial hub in Islamic banking and Takaful to attract foreign investors as well as moving ahead.

In terms of products development, the industry had moved in tandem with the conventional pattern where the family or life takaful products had dominated the portfolio mix (73 : 27). Family products are preferred due to its long term in nature for a sustainable income stream for the company as well as the intermediaries. Besides, family agency has becoming an important distribution channel in the industry perhaps due to the commonly known perception of "insurance is bought and not sold". Whilst other channels are still significant in their contributions overall, family agency is used by the operator mainly to reach the retail and untap market in the most cost effective manner.

It is not uncommon to hear that takaful is only for Muslims. Like the Islamic financing, takaful is a product which can satisfy everybody from "cradle to graveyard". Today we can see many non-Muslims walk into a takaful branch to obtain takaful policies. Eventhough the percentage is still insignificant, aggressive awareness campaign by all relevant parties can increase the participation from those market segment tremendously in the near future.

During early days of takaful in Malaysia, the takaful products are distributed only through the branches and takaful desks situated within the group's premises such as Tabung Haji and Bank Islam. The environment has changed significantly where the products are now distributed by various distribution channels such as agency, brokers, bankatakaful, internet, direct, strategic alliances as well as branches. Similar to most other industries, the internet marketing has yet to result in favorable outcome perhaps due to the rampant internet abuse by hackers leading towards 'internet phobia phenomena' in the society. We will share some internet marketing initiatives which can be adopted.

One of major obstacles faced by takaful industry previously is with respect to the availability of investment instruments which are Shariah compliant. This is very critical as the investment returns must be free from any Riba' (or interest) element. The Government had since then increased their initiatives to ensure that there are enough Islamic investment instruments available for the industry to subscribe. Eventhough the quantity and quality are still far behind as compared to the conventional instruments, we foresee more new instruments to be introduced by private as well as public sector in the near future.