Malaysia has firmly established itself as an Islamic hub in the world through leadership and innovative product offerings in the niche industry.
While most of the success in the Islamic financial realm owed to the government has created a comprehensive legal and regulatory framework, commercial banks and Islamic financial institutions are the ones that have completed the Islamic financial system, operating in parallel to the conventional system.
As such, the creation of an Islamic finance-enabling ecosystem is the key driver of the Malaysian takaful industry’s growth.
“This makes Malaysia a leading model for the sector, especially in light of the Muslim-dominated make-up of the untapped population segment,” said Fitch Ratings Inc in its latest report on Malaysian Takaful trends and outlook for 2020.
“Increasing product awareness is also a factor towards improving market penetration, as almost half of the Malaysian population does not have protection due to a lack of awareness on the comprehensive range of solutions offered by the takaful industry,” said the rating agency.
The takaful sector continues to enjoy faster growth than the conventional insurance sector, driven by stable domestic consumption and increasing consumer awareness.
Family and general takaful premiums rose by 29.6% and 16.4% respectively in the first half of 2019 (1H19), compared to 12.2% in conventional life and -1.3% in general insurance. The takaful sector also continues to gain share in the domestic insurance market with family takaful accounting for 35% of the overall life market based on new business premiums in 1H19 (2018: 32%). General takaful accounts for 16% of the overall general insurance market (2018: 14%).
But takaful’s penetration is still far too low despite a Muslim population of more than 60% and a burgeoning middle class in the country.