Malaysia’s takaful sector stable, but rising claims weigh on growth

Growing demand for digital services will be a catalyst for growth.

The profitability and capitalisation of Malaysia’s takaful sector is expected to remain stable thanks to increased demand and a supportive Islamic finance ecosystem, according to Fitch Ratings.

The increased awareness of medical and weather events coverage is likely to stimulate takaful growth in Malaysia, the ratings agency said in a report.

Growing demand for digital services will likely be a catalyst for the sector’s growth, Fitch added. Bank Negara Malaysia will finalise its framework for Digital Insurers and Takaful Operators in the first half of 2024.

Not everything is rosy for the sector, however. The inflationary environment, market volatility, weakening ringgit, and the end of the passenger cars tax exemption will weigh on growth.

Family takaful contribution declined by 3.9% in H1 2023 after two consecutive years of increases. Growth in protection products is steady, but the contributions are offset by a decline in investment-linked products amid market uncertainties, Fitch noted.

There was also a high claim ratio of 64.3% in 2023 for general takaful, which resulted in underwriting losses. Family’s takaful underwriting margin was also hit by medical inflation.

Despite this, general takaful still grew by 20.1% year-on-year in H1 2023 thanks to motor contribution, which was boosted by tax-free sales of passenger cars booked before 31 March 2023. 

The takaful sector also maintained its market share of 32% of the insurance market in Malaysia in the first six months of 2023.