muhammad bin ibrahim : towards resilience - are we on the right path? keynote address by mr muhammad bin ibrahim, governor of the central bank of malaysia ( bank negara malaysia ), at the malaysian insurance summit ( mis ) 2017 " towards resilience : are we on the right path? ", kuala lumpur, 30 october 2017. * * * nearly 30 years ago, the governor of bank negara malaysia highlighted several challenges facing the insurance industry in malaysia at the “ malaysian insurance industry seminar ” organised by the malaysian insurance institute ( mii ). he made four observations in his speech : insurance companies accounted for only 3 % of the assets of the malaysian financial system. only 1 in 10 malaysians had a life insurance policy. foreign insurers were at best, agents for their head offices. there was no urgency to develop local underwriting and management expertise. due to lack of local technical expertise, the sector was significantly dependent on the international reinsurance market. this in turn curtailed the development of local expertise, perpetuating a vicious cycle. a “ stock - take ” on the insurance and takaful industry ’ s achievements and shortcomings in the decades since, the bank has implemented major reforms to strengthen market participation, improve transparency and professionalism in sales practices, and encourage the development of domestic underwriting capacity to optimise retention of reinsurance and specialised risks. in 2009, foreign equity participation in the sector was liberalised further. after almost three decades of bnm taking over the task of regulating the insurance industry, it is worth for us to do a brief stock take. the insurance and takaful industry has grown at a healthy annual rate of 10. 47 % in the 20 years prior to 2016, and the sector now accounts for 6 % of the malaysian financial system assets. the industry is on a strong financial footing, with excess capital above regulatory requirements of rm37. 9 billion. risk management and corporate governance practices have also been significantly strengthened. insurance penetration, which is the ratio of life insurance policies and family takaful contracts to total population, increased from 25. 3 % in 1996 to 56 % in 2016. liberalisation in the insurance sector shareholding was also undertaken with a view to further improve the insurance sector. unfortunately, this is where the good news ends. despite stronger and better managed insurers, and an increase in foreign insurers ’ market share from 60 % in 2009 to 76 % in 2016, many of the issues

especially for firsttime buyers. the bank is partnering with the industry to roll out perlindungan tenang, a national branding and communication platform in the near future. perlindungan tenang is intended to reach 8 million working - age malaysians and over 700, 000 micro enterprises that currently need insurance and takaful protection against key risks. products that meet the three criteria of being : affordable, accessible and easy to understand. this product will carry the perlindungan tenang logo and benefit from regulatory flexibilities and co - branding and promotional initiatives. the aim is to address ‘ pain points ’ that commonly hold consumers back from purchasing insurance and takaful products. to - date, four insurers and two takaful operators have developed products that will be introduced under this initiative and we expect many more to come on board. secondly, the industry needs to embrace digitalisation to revolutionise the customer experience. many of the factors that make digitalisation possible in other sectors, such as a high mobile penetration rate of 134 % and the proliferation of new technologies, are also available to the insurance and takaful sector. the banking industry has made significant strides towards enhancing the take up of financial services delivery through the use of technology. in 2016, there were 22. 8 million internet banking subscribers which represents over 70 % of the total population. the insurance and takaful sector needs to catch up. today, online insurance distribution still accounts for less than 0. 1 % of business volume. a very poor achievement. with consumers already enjoying benefits of digitalisation in many other daily activities, they should expect better levels of personalisation, responsiveness and reliability from their insurance and takaful experience. this includes shorter time - to - compensate for insurance claims. in terms of the migration to e - payments, the insurance and takaful sector is a key sector where the usage of cheques is still prevalent. in 2016, 2. 3 million cheques were issued by insurance and takaful companies while 9. 8 million cheques were collected by such companies from their customers. while good progress has been made this year with the decline in cheque collection accelerating from - 0. 5 % in 2016 to - 22. 1 % in the first 7 months of 2017, more effective and creative measures are needed to drive cheque usage to negligible levels. to this end, bank negara malaysia has recently concluded a consultation exercise with the industry on the implementation of