Malaysia

Principal Legislation

• Insurance Act 1996 (effective 1 January 1997), amended to enhance solvency requirements and governance standards, is the core regulation for conventional insurance.
• Takaful Act 1984, updated to align with evolving Shariah compliance and governance best practices in Islamic finance.
• Code of Good Practice for Life Insurance Business (1998), supplemented with guidelines on digital distribution and consumer protection.
• Workers’ Compensation (Foreign Workers’ Scheme) (Insurance) Order 1993 continues to cover foreign workers for employment and non-employment injury compensation.
• Road Traffic Act 1987, mandates unlimited third-party liability insurance for vehicles on public roads; enhanced enforcement mechanisms introduced.
• Offshore Insurance Act 1990 (amended 1997 and recent revisions) governs Labuan’s insurance and reinsurance operations, with expanded focus on fintech and digital insurance offerings.
• Anti-Money Laundering and Counter Financing of Terrorism Act 2001, updated to strengthen preventive frameworks, including enhanced reporting and digital transaction monitoring.

Supervision

Malaysia’s insurance supervisory authority is Bank Negara Malaysia (BNM), which acts as the central bank and regulator. BNM has expanded its regulatory powers to cover digital insurance and consumer data protection.

The National Sharia Advisory Council at BNM advises on Sharia aspects of financial institutions’ operations and increasingly focuses on sustainable and ethical finance. The Islamic Banking and Takaful Department at BNM works to strengthen Malaysia’s position as an international hub for Islamic fintech and digital takaful solutions.

The Labuan Financial Services Authority (LFSA), formerly LOFSA, supervises companies registered in Labuan under the Offshore Insurance Act 1990 and actively promotes Labuan as a leading international business and financial centre within Asia, with a growing emphasis on innovation in captive insurance and digital risk transfer.

Admitted/Non-Admitted 

Non-admitted insurance is prohibited except for narrowly defined exceptions. Unauthorised insurers cannot carry on insurance business in Malaysia. Life insurance and reinsurance must be purchased through licensed local branches or entities, with the exception of medical insurance for foreign workers, which must be placed with a panel of local insurers.

Compulsory Classes

Compulsory classes include:

• Motor Third Party Liability
• Workers’ Compensation
• Professional Indemnity cover for insurance brokers, lawyers, and financial advisers.

State Involvement

There are no state-owned insurance companies operating in Malaysia.

Tariff Classes

Statutory tariffs are in place for fire insurance, with policies exceeding MYR 10 million eligible for up to 30% de-tariffing. Motor insurance premiums have been fully liberalised since 2017 and are no longer tariff based.

Premium Taxes and Charges

Insurers pay a stamp duty of MYR 10 per policy document issued. From 1 January 2025, a fixed stamp duty applies to assignments of life insurance policies and takaful certificates on a tiered basis (RM10 to RM1,000 depending on sum insured). Service tax on insurance premiums increased to 8% effective 1 March 2024. The Insurance Guarantee Scheme Fund (IGSF) levy is at 0.25% on all non-life premiums.

Policy Language

Policies are issued in English, with some products also available in Malay to enhance accessibility for a wider customer base.

The non-life insurance market comprises 28 direct insurance companies (including 10 composite insurers) and 11 takaful operators. Business practices remain largely unchanged, with innovation limited by fire insurance tariffs, though motor insurance has been fully liberalised. Some pricing flexibility exists for larger industrial property risks.

Noteworthy facts about the Malaysian insurance market:

• Insurance tariffs apply to fire insurance, with partial de-tariffing permitted for sums insured above MYR 10 million.
• Non-admitted insurance is prohibited.
• Insurance is compulsory for Motor Vehicle Third Party Liability and Workmen’s Compensation.
• Reinsurance:
  • Mandatory cessions vary up to 25%, depending on class and sum insured.
  • Fronting costs range from approximately 2.5% to 5%.

There are currently seven registered professional non-life reinsurance companies in Malaysia. Five of these are foreign reinsurers, with two licensed to write both life and non-life business. Four companies hold 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) resulted in the establishment of a new life reinsurance group in 1997.

The 30 reinsurers registered with the Labuan International Business and Financial Centre (IBFC) continue to play a significant role in Malaysian reinsurance arrangements. These reinsurers can operate offices both on the mainland and on Labuan Island, benefiting from offshore tax incentives. Additional reinsurance companies serve the market from branch offices outside Malaysia, particularly in Singapore.

The International Business and Financial Centre (IBFC) in Labuan, an island off the east coast of Malaysia, was set up towards the end of the last century.

When the Offshore Insurance Act (now repealed and replaced by the Labuan Financial Services and Securities Act 2010) was first introduced in 1990, it was not intended that Malaysian companies would be able to establish captives in Labuan, but the rules have subsequently relaxed and 69 captives, rent-a-captives and protected cell companies were registered at the end of 2023.

The Guidelines on Captive Insurance Business in Labuan International Business and Financial Centre, issued by the Labuan FSA, took effect on 1 January 2024. These repealed the Guidelines on Captive Insurance Business in Labuan IBFC, dated 28 October 2010 and the Clarification Note for Guidelines on Captive Insurance Business in Labuan International Business and Financial Centre, dated 17 December 2018. Amongst other items, the new guidelines stipulate the processes to be followed and requirements to be met by companies wishing to operate a captive insurance company.

Captives are regulated by the Labuan Financial Services Authority (LFSA), which is a one-stop agency established in 1996 to:

• promote and develop Labuan as a premier centre of high repute for offshore financial products and services; and
• develop national objectives, policies and priorities for the systematic growth and administration of offshore financial products and services in Labuan and to make recommendations to the government.

The Labuan IBFC is recognised as being one of the financial centres which is committed to the internationally agreed standards on exchanging tax information.

Some larger Malaysian companies have established captives in Labuan and arrange for their business to be ceded to them and thence to the international reinsurance market. Foreign multinational risks are ceded to captives on rare occasions, but it is difficult to maximise cessions as the local market often takes a large share of property risks under the terms of the large and specialised risks scheme.

Malaysia’s non-life market distribution is still dominated by agent and broker intermediaries, accounting for approximately 70% of non-life premium income in 2024.

The number of licensed non-life insurance agents stood at around 32,000 in 2024, down from a peak of 39,165 in 2007. Over the same period, the number of takaful agents increased significantly, reaching approximately 45,000 in 2024. The number of licensed brokers was about 40 in 2024, showing modest growth since 1990.

Minor tremors occasionally occur along the west coast of Peninsular Malaysia, but the country is not situated in a recognized earthquake zone. Malaysia does not experience windstorms. Flooding is a major exposure and a key concern for underwriters. The Kuala Lumpur district and parts of Selangor are particularly vulnerable to flash floods caused by tropical rainstorms. Coastal areas in Kelantan and Johor experience regular sea flooding.