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.

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.