Malaysia’s non-life insurance sector has been rated as stable by AM Best, with the ratings agency citing regulatory reforms and projected premium growth as key drivers.
While the country’s insurance penetration remains in the low single digits, AM Best highlighted that Bank Negara Malaysia (BNM) continues to drive regulatory measures in efforts to address this.
The central bank’s key initiatives include the Licensing and Regulatory Framework for Digital Insurance and Takaful Operators (DITOs), which took effect in July 2024, and plans outlined in the Financial Sector Blueprint 2022-2026. These efforts aim to achieve insurance penetration rates of 4.8% to 5.0% by 2026 and improve access to microinsurance and microtakaful products.
Additionally, the introduction of co-payment mechanisms for medical and health insurance in September 2024 and the Value-based Intermediation for Takaful Framework further support sustainable growth in the sector, according to the ratings agency.
Malaysia’s non-life insurance market also continues to benefit from economic recovery and the phased liberalisation of motor and fire tariffs. These changes are driving pricing flexibility, allowing for a gradual transition towards risk-based pricing models. This shift is expected to improve product innovation, align pricing with underlying risks, and enhance market efficiency.
While this transition may introduce short-term volatility in underwriting margins, AM Best predicts that insurers will maintain robust underwriting profits in the medium term through disciplined approaches to pricing and risk management.
Gross premiums written in 2023 exhibited moderate growth, driven by motor and fire lines, although the pace of expansion slowed compared to the double-digit growth recorded in 2022. The country’s GDP growth decelerated to 3.7% in 2023, following an 8.7% rebound in 2022, reflecting the impact of tighter monetary policy and slower economic activity.
Nonetheless, Malaysia’s economic outlook remains positive, with robust public and private investment expected to support near-term expansion. This economic backdrop is anticipated to spur further growth in the non-life insurance sector, with rising insurance penetration, rate hikes, and growing demand for digital insurance and takaful products playing pivotal roles.
Despite these positive developments, Malaysia’s non-life insurers face mounting risks from severe weather events, which have increasingly impacted underwriting profitability, particularly in the fire segment.
For example, extreme flooding earlier this month and in December 2021 resulted in significant losses. The Climate Risk Management and Scenario Analysis (CRMSA) framework, introduced in 2022, requires insurers to adopt comprehensive practices to manage climate risk exposures effectively.
Insurers are expected to continue refining underwriting strategies and raising premiums for high-risk products to mitigate the impact of climate-related volatility.
AM Best concludes that the ongoing challenges of climate risk and market competition will require proactive management to sustain stability.
