Malaysia

 

Supervision and Control

Principal Legislation

  • The Malaysian insurance market is regulated by the Insurance Act1996 and the Takaful Act 1984. The Insurance Act came into effect on 1 January 1997 together with the Insurance Regulations1996 and applies to business conducted in the conventional way.
  • The Takaful Act1984 regulates business conducted in accordance with Islamic principles.
  • The Code of Good Practice for Life Insurance Business (1998) sets out the rules for life insurers to maintain certain minimum standards in the design and sales of life insurance products.
  • Foreign workers are covered in respect of compensation for employment injury as well as non-employment injury under the Workmen's Compensation (Foreign Workers' Scheme) (Insurance) Order 1993.
  • The Road Traffic Act 1987 obliges vehicle owners using public highways to insure for third party liability for bodily injury for an unlimited amount.
  • The Offshore Insurance Act1990 (OIA) (amended 1997) governs the licensing and regulation of offshore insurance and related activities on the island of Labuan, off the north coast of East Malaysia.
  • The Anti-Money Laundering Act 2001 requires insurers to set up a framework to prevent money laundering through insurance.

Supervisory Authority
Malaysia's insurance supervisory authority is the Bank Negara Malaysia (BNM), which is the central bank for Malaysia. BNM's functions include the regulation and supervision of the insurance industry, money changers and development finance institutions.

The National Sharia Advisory Council set up at BNM advises the bank on sharia (Islamic) aspects of financial institutions' operations, whilst the Islamic Banking and Takaful Department looks to focus on strengthening Malaysia's position as an international Islamic financial centre.

The Labuan Financial Services Authority or LFSA, formerly known as the Labuan Offshore Financial Services Authority (LOFSA), is responsible for the supervision of companies registered in Labuan under the Offshore Insurance Act 1990. LFSA's main goal is to promote and develop Labuan as a one-stop and market-leading international business financial centre (IBFC) within Asia.

Admitted / Non-Admitted Insurance Regulatory Position
Non-admitted insurance is not permitted because the law provides that insurance must be purchased from locally authorised insurers with some exceptions.

Unauthorised insurers cannot carry on insurance activity in Malaysia. At the same time there is nothing in law which indicates that any life insurance or reinsurance products must be purchased from locally authorised insurers with the exception of medical insurance for foreign workers which is placed with a panel of local insurers. Foreign insurers cannot market their products in Malaysia unless they have a licensed local branch.

Compulsory Insurance

  • Motor third party liability.
  • Worker's compensation.
  • Professional indemnity cover for insurance brokers, lawyers and financial advisers.

State Involvement
There are no state insurance companies.

Statutory Tariffs
Malaysia has statutory tariffs for fire and motor insurance, although the fire tariff does not apply to certain higher-valued exposures.

Premium Taxes and Charges
Stamp duty is levied at the rate of MYR 10 per policy and a service tax of 6% is payable on non-life corporate insurance premiums. There is also an insurance levy (IGSF) of 0.25% on all non-life premiums.

Policy Language
English

Non-Life (P&C) Insurance Market

The non-life insurance market is made up of 26 direct insurance companies (in addition to nine composites) and nine takaful operators. There has been little change in the way business is conducted, and innovation is restricted by the fire and motor tariffs, although some flexibility is available to larger industrial property risks.

Noteworthy facts about the Malaysia insurance market:

  • Insurance tariffs apply.
  • Non-Admitted insurance is prohibited.
  • Insurance is compulsory for Motor-Vehicle Third Party and Workmen's Compensation.
  • Reinsurance:
    • Mandatory cessions up to 25%, depending on class and the sum insured
    • Fronting costs of approximately 2.5% - 5%.

Local Reinsurance Market

There are currently six registered professional non-life reinsurance companies in Malaysia. Four of the companies are foreign reinsurers, one of which writes both life and non-life business. Four of the companies also have retakaful licences.

In the life sector, a joint venture between members of the Life Insurance Association of Malaysia (LIAM) and the Reinsurance Group of America (RGA) led to the formation of a new life reinsurance group in 1997.

The 28 reinsurers registered with the Labuan International Business and Financial Centre (IBFC) also play an important role in Malaysian reinsurance arrangements. These can now have offices on the mainland as well as the Malaysian island of Labuan itself and still enjoy offshore tax advantages. Other reinsurance companies service the market from branch offices situated outside Malaysia, several of which are located in Singapore.

Distribution Channels

Malaysia's non-life market distribution continues to be dominated by agent and broker intermediaries, who accounted for 77% of non-life premium income in 2010.

The number of licensed non-life insurance agents in 2010 was 35,236, down from a peak of 39,165 in 2007. Over the same period the number of takaful agents had almost tripled, from 10,856 to 31,391. There were 33 brokers in 2010, down from 46 in 1990.

Natural Hazards

Minor tremors are felt from time to time on the west coast of Peninsular Malaysia, but the country is not within a recognised earthquake zone. Malaysia does not suffer from windstorms. Flood is a major exposure, and is of concern to underwriters. The Kuala Lumpur district and parts of Selangor state are particularly vulnerable to flash flooding following tropical rain storms. Coastal areas in the states of Kelantan and Johore regularly suffer from sea flooding.