ING, Public Bank joint venture taps Malaysian takaful market
ING and Public Bank's new takaful firm aims to be profitable by its fourth year of business as it taps Malaysia's underserved insurance market, and eventually expand into Indonesia and Hong Kong, its owners said on Thursday.
Copyright Reuters, 2010
The insurer, which received one of four family takaful licences awarded in September, will launch its first product in April in Malaysia where acceptance of takaful is limited and insurance penetration is among Asia's lowest.
"Penetration of life insurance is very low in Malaysia compared so some regional markets. It's an immature market," ING Insurance Berhad CEO Nirmala Menon said in an interview.
"We need to get to a stage where its like Taiwan or Korea where each person has 6-7 policies and understands the need to have them.
Malaysia has the world's largest sukuk market and Islamic assets account for about a fifth of the total banking system but takaful has struggled to make a mark in the Southeast Asian country.
There are eight Islamic insurers in Malaysia but the takaful penetration rate was only 10.5 percent as at June this year compared with 42.3 percent for conventional insurance, according to central bank data.
The total insurance penetration rate of 52.8 is much lower than Hong Kong's 120 percent and Japan's 200 percent as estimated by some industry players.
Menon said the joint venture was expected to break even in its third year of business although it has to work to overcome the low awareness and misconceptions about Islamic insurance among Malaysians.
Under the takaful model, participants contribute to a takaful fund. Contributions are separated from the takaful operator's assets and participants have an ownership interest in the fund.
When the fund makes money, the surplus is shared between the participants and, in some cases the takaful operator. When there is a loss, participants could be asked to contribute but the takaful operator will typically provide an interest-free loan.
Total takaful contributions could reach $7.7 billion a year by 2012, Ernst & Young forecast. But global takaful contributions are less than 1 percent of the total insurance premium spend annually, industry lawyers Clyde & Co have said.