RAM Ratings co-heads of financial institution ratings Sophia Lee
PETALING JAYA: While maintaining a stable outlook on the local insurance and takaful sector, RAM Rating Services Bhd says the rising cost of living could suppress consumer sentiment and impact the sector.
RAM Ratings co-head of financial institution ratings Sophia Lee told StarBiz - “While new business (NB) generation in the life and family takaful industry remains decent, the rising cost of living could stifle consumer sentiment.
“In the non-life sector, meanwhile, an anticipated dip in car sales this year with the end of the passenger cars tax exemption could see premium growth slow.
“Financial market volatility will continue to be a key factor influencing returns of life insurance and family takaful players given substantial investment assets held,” she said.
On the whole, the rating agency has retained its stable outlook on the Malaysian insurance and takaful sector, which is supported by steady growth in insurance demand, with capitalisation robust and claims under control.
Lee is projecting a year-on-year (y-o-y) expansion of 3.5% to 4% for the life and family takaful sector’s NB premiums and contributions for 2024 compared with 4% last year.
On the rising medical inflation, she said to prevent excessive premium hikes and encourage more responsible healthcare usage, Bank Negara now requires all insurers and takaful operators (ITOs) to include cost-sharing provisions in new individual medical and health products.
“Consumers with such policies will share some of the costs of healthcare services, which will result in lower premiums for them.
“This, coupled with other healthcare reforms such as making medical costs more transparent to consumers, may help contain medical cost inflation over the longer term.
“Claims in the near term, however, could stay elevated as existing policies without co-payment features can still be sold,” she said
As for the non-life sector, Lee said RAM anticipates NB premiums to rise by a slower 5% y-o-y in 2024 after exceptional growth the last two years. In 2023, the non-life sector posted a 9.4% growth in NB premiums.
Having previously benefited from sales tax exemptions, she expects car sales to come down this year, which would in turn dampen motor insurance and takaful growth.
Sales nonetheless are still expected to be healthy and would, together with a robust construction pipeline, continue to support expansion in the general insurance and takaful sector, she noted.
Lee said significant floods in recent years would also support demand for flood coverage in the motor and fire segments.
Asked on the recent launch of the licensing and regulatory framework for digital insurers and takaful operators (DITOs) by Bank Negara, she said it would help narrow the protection gap and promote greater innovation.
Meanwhile, RAM’s rating analyst Lee Yee Von, said the introduction of DITOs would intensify an already competitive landscape, though in serving the uninsured and under insured, they would complement incumbent players.
“Both the life and non-life sectors’ earnings before accounting for investment returns are at the lowest levels seen in years as the increase in claims and operating costs outpaced premium and contribution growth, she said.
According to Yee Von, continued system upgrades and investments in talent, coupled with competitive pricing, are expected to keep margins under pressure. Financial market volatility would continue to heavily influence bottom lines of ITOs, particularly life and family takaful operators given substantial investment assets held.
Under the central bank’s latest macro solvency stress test, the post-shock capital position of ITOs would still be above the regulatory requirement, she said.
