•  Secondly, the dynamics of the market place have already resulted in alternative marketing approaches to the traditional agency system, including more cost effective distribution channels like bancassurance. This concept has gained acceptance worldwide for the provision of a wide range of life and pension products via the distribution networks of banks. BIS Review 123/2007  1  •  Thirdly, globalization of the world economy and financial markets, as well as trends towards greater financial innovation and promoting shareholder value, have contributed to a wave of mergers and acquisitions between insurers, banks and asset management companies resulting in the emergence of financial conglomerates. These integrated entities will inevitably raise the bar in the entire business value chain, including product design and pricing, streamlining of distribution channels and integrating valuable databases of customer information, thus accentuating further competitive pressures within the life insurance markets in the region. •  Finally, an area that will present significant opportunities as well as challenges to the insurance industry will be the evolving structure of social security systems and safety nets that will have to keep pace with demographic changes as well as the rising cost of medical care. Many nations are already finding it difficult to provide adequately for the needs of the aging population through state provided social security. It has been reported that globally, life insurance premiums amounted to USD2,200 billion in 2006, and Asia as a region is the fastest growing life insurance market, in line with rapid economic development and growth.

Financial services and economic liberalization in Asia, particularly in China, India and South-East Asia have significantly widened the market outreach for life insurance whilst unlocking considerable market potential in new growth areas. Indeed, the transformation of Asian countries into industrial and services powerhouses, with increasing share of world output, will present abundant insurance opportunities within the region as countries make huge investments in upgrading their physical, financial and human capital infrastructure. On the domestic front, the Malaysian economy continued to be on a steady growth path with real GDP expanding by 5.7% in the second quarter of 2007 and an anticipated 6% for the entire year. In tandem with this growth, the insurance industry, including the takaful sector, recorded a combined premium growth of nearly 10% for both the life and general sectors to reach RM13 billion in the first half of 2007. The assets of the life and general insurance funds correspondingly registered a double-digit growth of 14% to RM116 billion as at end June, 2007, from 11% in the corresponding period in 2006. This growth momentum is expected to continue in 2008 in line with the sustained growth of the Malaysian economy. One of the key mandates of Bank Negara Malaysia is to develop the insurance industry into a strong, dynamic and innovative component of the financial system. In this respect, industrialization and real sector growth have to be complemented by a strong and thriving services sector, especially in the area of banking and insurance.