Malaysia among new wave of rapid-growth markets to provide significant opportunities for global insurers

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Kuala Lumpur, 19 February 2014 – Global insurance companies seeking to expand their businesses are increasingly looking to a new wave of rapid-growth markets (RGMs) as well as the BRICs. According to EY’s Waves of Change: The shifting insurance landscape in rapid growth markets report, China will continue to play an dominant role in driving premium growth in international markets but new emergers such as Mexico, Thailand, Colombia, Indonesia and Malaysia are offering valuable long-term opportunities.

The report features a risk-opportunity matrix, ranking 21 rapid-growth markets in terms of their future prospects for insurers based on projected economic and premium growth until 2020, financial stability, regulatory change, macroeconomic volatility, liquidity risk and other factors. Opportunities for global expansion into new markets represent a powerful force accelerating the growth in insurance premiums today – especially as economic performance languishes in much of the developed world.

Shaun Crawford, EY’s Global Insurance Leader, comments, “The overall contribution of rapid-growth markets to insurance premium growth will continue to be very significant. Some of the larger economies, such as Brazil, Russia, India and China, appear to have entered a period of slower growth but they continue to possess high, long-term potential. And new waves of market liberalization and rapid consumer adoption of new technologies are opening additional markets such as Mexico and Thailand to non-domestic firms. However, each market has its own distinct risk profile. Insurers will need to model the risks across all the geographies to clearly evaluate the drivers for growth and pick their targets carefully.”

Brandon Bruce, EY’s Malaysia Insurance and Takaful Leader said, “According to the report, Malaysia ranked 6th among the 21 rapid growth markets surveyed, one of the top countries offering opportunities to insurers looking for investment options. She also ranked 6th in terms of risk, amongst the lowest of the rankings.  This comes as good news as Malaysia continues to be seen as a preferred destination for investments - because of its competitive economy and infrastructure as highlighted in EY’s 2013 ASEAN Capital Confidence Barometer recently.” 

High growth, low risk

According to the matrix, China, Mexico and Thailand will offer the best risk versus opportunity potential for insurers between now and 2020. China, despite a recent modest slowdown, continues to boast extraordinary income growth that spurs auto and home ownership. In addition, an aging population will drive the development of life and health markets. However, while some regulatory restrictions have been relaxed, market entry remains difficult for foreign firms.

Mexico has also undergone a period of extensive liberalization, opening its market to foreign insurers. On some measures, Mexico is the most open insurance market in the study. Yet the pace and unpredictability of regulatory change can be risky for investors.

Thailand offers intriguing near-term growth potential, with modest risk but unlike other markets, such as Malaysia and UAE which also fall into this category, Thailand’s future growth prospects are also strong.

Among these RGMs, Malaysia also offers an attractive mix of demographics and strong economic growth. Its rising incomes, a sustained construction boom and the increased adoption of sharia-compliant insurance products are creating new opportunities.

New distributions channels and product innovation key to growth

The increase of new distribution channels offers fresh opportunities for the industry’s growth.   Bancassurance, a partnership that allows banks to sell insurance products, for instance, accounted for 49% of life premium sales in Malaysia in 2007, making it the most dominant distributor.

More recently, digital channels, including mobile devices and social networks, have also become critical for insurance providers.  As the development of information technology continues to play a vital part in the country’s economy, there is a need for insurance firms to gain greater digital skills. The increased use of mobiles and tablets is further driving the rapid expansion of insurance opportunities in RGMs.  As there is evidence that insurers often lag behind others in their adoption of digital technologies, firms should explicitly evaluate their digital strategies as they consider future expansion.

The innovation and development of takaful is another key area of focus. While Malaysia is the biggest takaful market worldwide, her market penetration of takaful is only 10%, compared to 40% for conventional life insurance.

Brandon concludes, “While investment into Malaysia and the other RGMs will continue to be vital for global insurance firms, outsized returns will not come easily. They need to be closely attuned to and understand regulatory changes in the market, consumer behaviour, social media and local culture.  Companies that carefully tailor products and business plans for specific markets will see the greatest rewards.”


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