muhammad bin ibrahim : the changes in malaysia ’ s insurance sector keynote address by mr muhammad bin ibrahim, governor of the central bank of malaysia ( bank negara malaysia ), at the 6th malaysian insurance summit, kuala lumpur, 18 october 2016. * * * reaching the point of inflection on the “ s - curve ” over a decade ago in the insurance annual report 2000, bank negara malaysia projected that malaysia ’ s insurance sector would expand following the trajectory of an “ s - curve ”. growth in both the life and general insurance markets would significantly outpace the economy, ascending the steep slope up the “ s - curve ”. since then, total assets of the insurance and takaful sector have expanded at an annual rate of 13. 3 %, more than tripling in value from rm52 billion in 2000 to rm181 billion in 2010. life insurance penetration increased from 33 % to 51 % of the malaysian population over the same period. in the more recent years however, this growth has started to plateau. life insurance penetration has remained stagnant at 55 % for the past 3 years, while in the general insurance sector, domestic capacity for larger and more specialised risks appears to be reaching its limits. this in turn has contributed towards sustained reinsurance outflows which have an impact on the country ’ s long term current account balances. based on our observations, the industry appears to be approaching the point of inflection in the “ s - curve ”. yet we know that its growth potential remains significant, with malaysia still a long way from being a saturated market. this suggests that the industry is ripe for transformation to a new growth trajectory. the industry in essence has not delivered the required results. jumping the “ s - curve ” : the need for positive feedback loops successfully jumping the cusp of the “ s - curve ” is the only way to realise the aspiration of a deeper and more diverse insurance market. this calls for transformational change, driven and reinforced by positive drivers that will revitalise the industry. in the context of financial services today, these drivers focus on three “ t ” s – talent, technology and trust. these three factors can be harnessed to catapult the industry onto a path of new and stronger growth, or they can precipitate its decline over time. the industry must secure the former for its future expansion or else it will continue plateauing. let me speak briefly on these three factors. firstly, we must

grow the talent we need to bring our insurance and takaful sector to the next level. as our economic structure evolves, we will need a deep pool of insurance and takaful professionals who can develop and support new solutions for managing risks. unfortunately, talent shortage has been a persistent issue which, if not resolved, will not only hold back the industry from gaining new ground ; it could lead to a further retrenchment of business growth. the industry needs to make further efforts to attract and nurture new talents. for example, the lack of underwriting expertise is a major reason why we have yet to stem the outflow of insurance for large and specialised risks. over the last five years, the amount of direct and reinsurance premiums ceded overseas for the marine, aviation & transit ( mat ) and energy risks amounted to over rm5 billion, with the retention ratio for these classes bis central bankers ’ speeches remaining below 30 % for the last 10 years. with our world - class oil and gas industry and one of the largest airline fleets in the region, having the requisite insurance underwriting expertise in these sectors is not only a logical business extension for the industry ; it is also an important economic imperative for the country. with more than 200 actuarial science graduates coming into the market annually, a healthy talent pipeline exists to support a whole range of functions from pricing to risk management and financial reporting. to leverage this resource, more needs to be done by the industry. in a recent survey of 20, 000 graduates in malaysia, the insurance and takaful sector lags other financial institutions in attractiveness, with only three positions among the top 100 employers in malaysia, compared with the banking sector which has 16 names. the industry, collectively, ought to do better than this. we cannot be complacent when it comes to talent development. the hunt for talent is a continuous affair. therefore, a strategic focus and investments to attract, retain and develop this talent must be prioritised. this cannot be left to random and piecemeal initiatives ; strong leadership at the industry level is required to drive a more organised industry effort to develop and strengthen core competencies of the industry workforce across the board. as a way to accelerate the breadth and depth of our talent pool, the bank would support the establishment of regional functions and centres of excellence by insurers and takaful operators in malaysia to serve the regional and international markets. in addition to deepening the domestic insurance