KUALA LUMPUR: Malaysia’s insurance industry has, in essence, not delivered the required results expected of it, said Bank Negara Malaysia (BNM) governor Datuk Muhammad Ibrahim.

In his keynote address at the Sixth Malaysian Insurance Summit yesterday, the governor said the central bank had in the Insurance Annual Report for 2000 projected that Malaysia’s insurance sector would expand following the trajectory of an “S-curve”.

BNM had forecast growth in the life and general insurance markets would significantly outpace the economy, ascending the steep slope up the S-curve.

Ibrahim said since then total assets of the insurance and takaful sector have expanded at an annual 13.3%, more than tripling in value from RM52 billion in 2000 to RM181 billion in 2010, with life insurance penetration increasing from 33% to 51% of the country’s population over the same period.

However, he noted that in recent years, the insurance industry’s growth has started to plateau, with life insurance penetration remaining stagnant at 55% over the past three years.

Also, the general insurance sector has seen domestic capacity for larger and more specialised risks appear to be reaching its limits.

“This in turn has contributed towards sustained reinsurance outflows which have an impact on the country’s long-term current account balances.

“Based on our observations, the industry appears to be approaching an inflection point in the S-curve,” said Ibrahim.

Nevertheless, he said the insurance industry’s growth potential remains significant, with Malaysia still a long way from being a saturated market.

The governor, who cited he has a connection to the insurance industry, as the first BNM governor with an insurance background, said the industry is ripe for transformation for a new growth trajectory.

“This calls for change, driven and reinforced by positive drivers that will revitalise the industry.

“In the context of financial services today, these drivers focus on three ‘T’s — talent, technology and trust,” said Ibrahim.

On talent, the governor said the insurance industry needs to make further efforts to attract and nurture new talents.

“For example, the lack of underwriting expertise is a major reason why we have yet to stem the outflow of insurance for large and specialised risks.

“Over the last five years, the amount of direct and reinsurance premiums ceded overseas for the marine, aviation, transit and energy risks amounted to over RM5 billion, with the retention ratio for these classes remaining below 30% for the last 10 years.

“With our world-class oil and gas industry and one of the region’s largest airline fleets, having the requisite insurance underwriting expertise in these sectors is not only a logical business extension for the industry, but also an important economic imperative for the country,” he said.

Insurers, he pointed out, must stay ahead of the curve in leveraging new technologies to be more accessible, efficient and agile.

“The insurance industry needs to accelerate its pace in technological adoption or else events will dictate the shape of the industry’s future,” he added.

According to Ibrahim, the insurance and takaful industry’s potential growth is significant, with estimates placing the life and medical insurance protection gap alone in Malaysia at between RM550,000 and RM723,000 per household.

“Closing the gap is ultimately the industry’s moral responsibility.

“Microinsurance and microtakaful should be further developed to improve access to underserved segment of society,” he said.

He added that the insurance industry also needs to explore new cost-efficient delivery channels, since the industry has not done well in this aspect.

“As a catalyst, beginning next year, insurers will be required to offer pure protection products through a direct channel without commissions.

“The high Internet and mobile phone penetration in Malaysia suggests that Internet or mobile insurance makes good sense,” he said. Other untapped channels include banking agents, retail chains, employers and cooperatives.