Malaysian insurance is set for a shake-up

“Sell me insurance,” said no one ever.

While insurance isn’t typically anyone’s idea of fun, a new digital insurance license in Malaysia is shaking things up and could change how people and firms in the country approach the industry.

Change is sorely needed: Some 90% of the country’s population is underinsured, and only 15% of SMEs have adequate coverage, according to management consulting firm EY.

For years, insurance companies – and the brokers and banks that distribute them – have been largely concentrated around major urban centers like the Klang Valley, perpetuating low insurance penetration rates.

Incumbent insurers, meanwhile, typically develop products and services targeting higher-income customers that fit into their risk profile. This limits the insurance coverage for lower-income customers, notes Ravi Kittane, partner for financial services at EY.

Markets that have offered virtual insurance licenses have seen results in the past. For instance, starting 2019, four digital players have clinched digital insurance licenses in Hong Kong, and the market has seen an uptick in policies sold through direct, online channels.

Could the same happen in Malaysia?

Traditional licenses out of reach

In July, Bank Negara Malaysia, the country’s central bank and monetary authority, released a new insurance license and regulatory framework. The new policy covers digital insurance firms and takaful operators – those that offer a model of insurance that adheres to Islamic law.

The move sets the stage for digital insurance firms – both local and foreign – to make products more accessible to the country’s underserved and unserved segments.

Malaysia doesn’t currently offer licenses specifically for digital insurers. To offer digital insurance products of its own, a company needs to obtain a traditional license as an insurance and takaful operator (ITO), but the requirements for applicants are strict.

There are also a limited number of these licenses available. Bank Negara has not indicated that it is planning to issue new ITO licenses, EY’s Kittane observes, and the number of approved players has remained relatively constant for most of the past decade.

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