The Malaysian insurance and takaful industry is a critical pillar of the financial services sector, yet penetration remains strikingly low compared to regional peers. According to the Life Insurance Association of Malaysia (LIAM), the penetration rate currently stands at approximately 56.1%. However, once multiple policyholders are excluded, the effective rate falls to just 41%—meaning only four out of ten Malaysians hold life insurance or takaful protection. Coverage is particularly weak among the lower-income segment, with only 4% of B40 households having any form of policy.
This underpenetration highlights a systemic protection gap. Many households either have no coverage or are significantly underinsured, with sums assured falling short of providing adequate replacement income or meeting long-term obligations such as education and healthcare. The gap is most visible among individuals over 50, women, Bumiputera communities, self-employed workers, and those with lower levels of financial literacy.
Structural Drivers of Low Penetration
Several structural issues contribute to this challenge. Affordability remains a key barrier as premiums compete with daily living expenses, particularly in an inflationary environment. Awareness levels are also low, with many Malaysians perceiving insurance as discretionary rather than essential. Cultural attitudes further complicate uptake; some view insurance with skepticism, while others prioritise informal safety nets such as family support.
Policy initiatives such as the Perlindungan Tenang Voucher Scheme—providing RM50–75 vouchers for low-income households to purchase protection—helped boost issuance temporarily, but uptake fell sharply after the scheme ended in late 2022. This underscores the difficulty of sustaining coverage growth without structural change.
Why Insurance Matters for Malaysia’s Economy
The case for stronger insurance penetration extends beyond individual households. At the macroeconomic level, insurance enhances financial resilience, reducing dependence on government welfare programmes. Higher penetration rates broaden the risk pool, enabling insurers to allocate capital more efficiently and strengthening the stability of the financial system.
For households, life and health insurance provide critical safeguards against income shocks, medical inflation, and unforeseen events. For businesses, coverage enables risk transfer, protecting assets, employees, and operations. Collectively, this creates a more resilient economy, capable of withstanding external shocks.
Opportunities for Expansion
Despite structural challenges, Malaysia’s insurance and takaful industry is well-positioned for growth. Family takaful has been a key bright spot, registering a compound annual growth rate (CAGR) of 10.9% in contributions between 2019 and 2023, far outpacing the 4.6% CAGR of conventional life policies. The number of takaful agents has also overtaken conventional counterparts, reflecting demographic alignment and rising awareness of Shariah-compliant financial solutions.
Digitalisation is another critical growth driver. Bank Negara Malaysia’s 2024 framework for Digital Insurers and Takaful Operators (DITOs) is expected to widen access through lower-cost, technology-driven models. This aligns with the Financial Sector Blueprint 2022–2026, which emphasises financial inclusion and innovation. The takaful sector’s Hijrah 2027 Strategic Plan, which targets doubling penetration from 20% to 40%, further reflects the industry’s growth trajectory.
Closing the Protection Gap
Addressing Malaysia’s underpenetration requires a multi-pronged approach, in our view:
- Education: Nationwide financial literacy campaigns are essential to shift perceptions of insurance from optional to indispensable.
- Affordability: Micro-insurance and modular products can capture underserved segments such as gig workers and young parents.
- Distribution: Digital platforms and inclusive agency models will be critical to expanding reach into rural and lower-income markets.
Conclusion
The low penetration of insurance in Malaysia highlights a paradox: while protection is urgently needed, structural barriers hinder uptake. Yet, this gap presents significant growth potential. With targeted policy support, innovation in product design, and sustained awareness-building, the industry has the opportunity not only to expand market share but also to contribute meaningfully to Malaysia’s financial stability and social resilience.
Disclaimer
The information contained herein does not constitute an offer, invitation, or solicitation to invest in any product or service offered by Phillip Capital Management Sdn Bhd (“PCM”). No part of this document may be reproduced or circulated without prior written consent from PCM. This is not a unit trust or collective investment scheme and is not an obligation of, deposit in, or guaranteed by PCM. All investments carry risks, including the potential loss of principal.
Performance figures presented may reflect model portfolios and may differ from actual client accounts’ performance. Variations in individual clients’ portfolios against model portfolios and between one client’s portfolio to another can arise due to multiple factors, including (but not limited to) higher relative brokerage costs for smaller portfolios, timing of capital injections or withdrawals, timing of purchases and sales, and mandate change (e.g., Shariah vs. conventional). These differences may impact overall performance.
Past performance is not necessarily indicative of future returns. The value of investments may rise or fall, and returns are not guaranteed. PCM has not considered your investment objectives, financial situation, or particular needs. You are advised to consult a licensed financial adviser before making any investment decisions.
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