Mohd Razif bin Abd Kadir: Malaysia's life insurance industry
Speech by Mr Mohd Razif bin Abd Kadir, Deputy Governor of the Central Bank of Malaysia, at the
official launch of Axa Affin Life Insurance Berhad, Kuala Lumpur, 30 January 2007.
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It is indeed an honour to be here this morning to witness the launching of Axa Affin Life Insurance
Berhad. The launch of Axa Affin Life Insurance Berhad today marks an important development where
two players from different financial industries, i.e. Affin Holding Bhd and Axa Asia Pacific Holding Ltd.,
forge a strategic alliance to attain synergy for mutual business advantage. I wish to congratulate both
companies on this momentous event.
Ladies and gentlemen,
The financial landscape had undergone tremendous transformation in the last decade. The life
insurance industry continues to sustain strong performance amidst challenges in a competitive
environment. The evolution in the financial landscape saw a shift in customers' preference, emergence
of more complex products and increasing diversity in delivery channels. The growing acceptance by
the insuring public for financial protection in the form of insurance coverage has gained prominence
especially for investment linked products which currently commands a market share of more than 40%
of new business. This period also witnessed the growing importance of bancassurance as a channel
for marketing life insurance products.
The life business written via the bancassurance channel currently accounts for almost 50% of the new
business written in the life insurance sector. This potential is further supported by a survey conducted
in 2004 which I believe remains relevant. The survey revealed that customers, despite the availability
of banks' virtual network, prefer to visit branches to conduct their dealings; there is a high level of
confidence and trust generally placed by the public in banks; and the strong preference among
consumers for insurance products with a high savings content that enhances the complementary
elements of insurance and banking products.
This development provides significant competitive advantages for financial institutions and insurance
companies which have partnered and adopted an integrated approach to market their financial
products by leveraging significantly on the banking network. With close to 3200 bank branches located
throughout the country, the banks' customer base constitutes a significant market potential.
Furthermore, the insurance and takaful penetration ratio is currently only at 44% of the Malaysian
population. In this regard, there is huge potential that is left remaining untapped.
Despite the tremendous benefits that can be reaped from bancassurance, this opportunity, however,
has not yet been fully harnessed. To date, an estimate of only less than 8% of Malaysian banking
customers have relationships that include insurance products and services. Even though growth of
bancassurance registered an encouraging trend, it is only driven by a small number of banking groups.
In view of the high success penetration rate of bancassurance service providers and the fact that bank
backed insurance companies have ready pool of the banking customers within the group to tap, they
should seriously explore the bancassurance route to exploit the effectiveness of bancassurance to
gain new market share.
Ladies and Gentlemen,
I am confident that the commitment of Axa Affin's foreign partner to introduce its best practices in
Malaysia and its strategy to "Think Global Act Local" in terms of product innovation, operational and
distribution strategy will go a long way towards ensuring the success of this new business venture,
founded on the sound relationship they have nurtured via the general insurance entity, i.e. Axa Affin
Assurance Berhad. This would also contribute to the development of the industry through the transfer
of expertise, providing leadership in innovation and expanding the range of quality products and
services available to Malaysian consumers.
Having such strategic partnerships which allows equity participation from international players of up to
49% under BNM new liberalized operating environment would enable insurers to leverage on the
experience and financial capabilities of the foreign partner and this would allow them to grow in size.
They would also have the capacity to improve their competitiveness and enter into foreign markets,
taking more complex risks and expand their product portfolio more significantly.
Ladies and Gentlemen,
On the regulatory front, allow me to share with you what the future holds for the regulatory
developments that would predominantly shape the future direction of the life insurance industry. The
Bank's future regulatory orientation will be characterized by a heightened focus on, and alignment,
with risk; anticipatory, rather than reactionary interventions; a clear goal to promote efficiency,
innovation and competition by ensuring that regulation is proportionate in relation to its costs and
benefits; greater use of incentive approaches to achieve desired institutional behaviours and
outcomes; an expanded regulatory toolkit that leverages more extensively on the inherent checks and
balances built into the system; and an increased focus on market conduct and harnessing active
consumerism to reinforce prudential regulation and supervision. In this regard, I wish to emphasise
that in the course of designing any regulatory framework, the Bank will continue to involve all
stakeholders particularly the industry for better appreciation of new policies introduced.
The insurance industry is expected to continue its positive growth momentum in the near term. Growth
in the life sector should continue to receive support from the encouraging demand for savings and
investment-driven products such as endowment and investment-linked insurance. The increasing
awareness among the consumers of the importance of risk protection, relatively low penetration level
and large mortality protection gap also underpin strong future growth opportunities for life insurers in
the more traditional risk product lines such as term (including credit-related term) insurance. Also
contributing to the growth opportunities for risk products is the growing preference among the more
sophisticated consumer segments for unbundled investments and protection solutions which offer
greater flexibility with investment choices, without affecting protection levels.
Amidst these prospects and as the financial services industry transitions to a more deregulated and
market-driven environment, the regulatory and supervisory approach will continue to evolve into one
that is more principle and risk-based, providing greater operating flexibility to insurers. In this regard,
the proposed risk-based regulatory regime which includes the new risk based capital framework that is
going to be introduced in due course is a move in this direction. This would further strengthen the
incentives for improved risk management practices of insurance companies. The new requirement
would also facilitate more efficient capital structures that are more reflective of the different risk profiles
of individual institutions, whilst providing greater investment flexibility to insurers without compromising
on prudential standards. Such insurance companies would be well-positioned to reap the opportunities
abound in the insurance market place.
Under this risk-based regulatory regime, the responsibility for the implementation of sound risk
management and market conduct governance, as well as assessment of risks and management of the
financial condition of an insurer, will increasingly rest with the Board of Directors and Senior
Management of the insurer. This will ensure that the financial system is able to continuously adapt
whilst maintaining a clear focus on sound risk management that will continue to be a critical pillar to
support a resilient insurance industry. It will also enhance public confidence in the efficiency and
performance of the financial system to contribute to the overall development of the economy. This
approach is also a move towards a differentiated regulatory and supervisory approach whereby
companies that demonstrate strong corporate governance standards and risk management practices
will be accorded 'lighter regulatory touch', which implies that they will be given greater regulatory
flexibility.
This underscores the importance of capacity building by the financial institutions in research and
development and re-engineering of business processes in search of operational excellence and
enhanced customer service delivery. A strong culture of excellence is therefore vital: one that is
embedded in all levels of the organisation; one that fosters and rewards innovation and service quality.
A customer-centric focus is, and will continue to be, the winning formula for a successful financial
services provider. In particular, insurers must ensure suitability of products sold or advice given; play
an active role in enhancing financial capability of consumers; and ensure policyholders are treated
fairly.
This regulatory approach will basically benefit those companies that are efficiently-run and
wellcapitalised. In this regard, Axa Affin will benefit from this new regulatory approach if it puts in place a
risk management system that could be used to capitalize incentives accorded by the new framework.
The synergies derived from the strengths of the bank and the experience of foreign insurance partner
should be harnessed to benefit from this new environment, particularly in the bancasurance line of
business.
Ladies and Gentlemen,
I am confident that Axa Affin Life should be able to strategise itself by optimizing and leveraging on
each others' strength and expertise, experience and infrastructure so as to offer diversified products
and enhanced customer service.
On that note, it is my pleasure to officially launch Axa Affin Life Insurance Berhad and wish Axa Affin
Life Insurance Berhad every success in its endeavours and I look forward to its contribution towards
further development of the domestic insurance industry.
Terima Kasih.