Asia

Takaful presents competitive threat

The Malaysian non-life market is one of the most overcrowded in Asia, according to the latest report by rating agency Fitch. The existing tariffs in the motor and fire insurance markets and the absence of risk based pricing mechanisms in the broader insurance market, means that it is very difficult for companies to make an underwriting profit in the market. However, the market is facing regulatory change. According to Fitch, the most significant of these changes is the full implementation of risk-based capital (RBC) requirements in 2009. The RBC framework, first introduced in 2007, has been operating in parallel with an existing European Solvency I-type regime. Fitch expects that these structural changes together with the global financial crisis will force a large number of companies without sufficient capital and technical expertise to exit the market. Interestingly, Fitch issues a warning to conventional insurers about the emerging competitive threat of Takaful companies. Takaful, which accounted for 5.0% of total insurance market premium income in 2002, now accounts for around 9.0%. In addition, Takaful companies will not be subject to the new RBC requirements.