Malaysia’s Life Industry Seeks Government Support for Private Pension Plans

Malaysia's life insurance industry is calling for more government initiatives to develop private pension schemes to strengthen retirement protection and insurance penetration in the country.

The promotion of private pension schemes, along with personal tax breaks for life insurance products, will be two key government initiatives to boost the insurance market in Malaysia, said Adnan Zain, president of the Life Insurance Association of Malaysia, during a government conference on economic transformation programs.

The boost to the insurance industry will depend on how fast the Employees Provident Fund initiatives can kick in, Zain said in a presentation. As insurance business is one key area for driving economic growth, the government needs to offer incentives and promote financial planning in Malaysia, he said.

The Employees Provident Fund is a state-administered social security fund. At the end of 2009, the fund had 12.35 million members, of which 5.79 million were active and contributing members, according to the fund's website.

The number of life insurance policies as a percentage of population in Malaysia is expected to increase to 75% in 2020 from 41% this year. Life insurance penetration as a percentage of gross domestic product would rise to 4% by 2020, according to LIAM. Swiss Re's "World Insurance in 2009" sigma report pegged Malaysia's total insurance penetration rate at 4.4%, with life insurance penetration at 2.9%. The world average penetration rate for life insurance in 2009 was 4%.

In Malaysia there is a need to fill the retirement income gap through private pension schemes, LIAM said. The current protection from Employee Provident Fund savings is insufficient due to improving life expectancy, and there is a large group of self-employed people without any retirement protection. Zain said establishment of private pension schemes is "a step in the right direction."

"To ensure the successful implementation of private pension schemes, it is imperative that the focus should not only be on the pre-retirement accumulation phase," said Zain. "Post-retirement distribution phase requirements need to be properly addressed to prevent retirees from exhausting retirement funds prematurely." In this area, life insurance companies could provide the experience and products to meet the needs of retirees.

In Malaysia, the life insurance industry has experienced growth two to three times faster than the country's GDP growth. New business increased 24% on a weighted premium basis in the first half of 2010, according LIAM. Single premium insurance contributed most to the growth with a 51% rise in sales, compared with 22% of regular premium insurance.

The life business outlook for the second half of 2010 continues to be promising, with a projection of more than 20% annual growth for the industry. "In view of the numerous initiatives by the government to propel the country into a high-income nation by 2020, we expect a far stronger performance by the insurance industry in 2011," said LIAM in a statement.

However, LIAM said the current penetration level among individuals for life, education, retirement savings and medical insurance is still low because 59% of the population does not have any insurance protection in Malaysia. This reason for the government to boost insurance penetration as part of its economic growth plan, the group said. Insurance companies and agents can play a significant role to expand market development, the trade group said.

(By Iris Lai, Hong Kong bureau manager: [email protected])