Stronger growth seen for insurance

The insurance industry is poised to show improvement in performance in the second half of the year on the back of the recovery in the country’s export sector. Many insurance players are optimistic the performance for the second half will be better than the first half of the year underpin by the pick-up in economic activities spurring stronger export growth, reports The Star (July 11, 2009).
Great Eastern Life Assurance (Malaysia) Bhd director and chief executive officer Koh Yaw Hui told the newspaper: "All recent economic indicators suggest that the worst is over as the most affected export industry has been seen picking up and many companies have started recruiting.
"We expect the life insurance industry for the second half of the year to do much better than the first half. Personally, I think this year, the industry should end up having double-digit growth."
The growth driver that will steer the industry in the second half, it quoted general insurer LPI Capital Bhd chief executive officer Tee Choon Yeow will be the export and construction sectors.
The growth in the export industry, he adds, will help in the development of the marine and manufacturing sectors, which in turn will create greater demand for marine insurance as well as fire insurance, it added.
Manulife Holdings Bhd Group CEO Michael Chan was quoted as saying he is positive of the outlook for the insurance for the second half as insurance plays a very important role in one’s financial planning portfolio regardless of the economic cycles.
“Manulife’s insurance business showed strong growth in the second quarter as we launched new products and new agency performance management standards.
“We expect to see continued improvement in the second half as we roll out more new products, further drive the agency performance management standards and continue with our recruitment programmes,” Chan adds.

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Koh says Great Eastern has done very well in the first half of the year registering more than RM360mil in total weighted new business premium, which was more than 50% growth compared with the similar period last year in line with economic improvement.
Riding on the momentum of its strong first half result, he adds the company should continue to do well in the second half and meet its goal of RM800mil in total weighted new business premium for this year.
Based on the company’s first six months results, Tee points out that Lonpac is still optimistic of meeting its target of 15% growth in gross premiums by year-end.
Despite operating in a competitive and challenging environment, it turned in an impressive underwriting surplus of RM35.5mil representing a significant jump of 55.7% over the corresponding period of 2008. It also recorded underwriting surplus in all classes of insurance for the period.
Tee attributed the improved performance to prudent underwriting which has help it achieve profit and premium growth year on year.
He stress for insurers to improve performance amid the tough economic environment, they need to also display a high degree of transparency, corporate governance and professionalism.
According to Bank Negara’s statistics, gross premiums for general insurance last year stood at RM9.73bil against RM9.07bil in 2007. Net premiums for the period was also higher at about RM9bil as oppose to RM8.2bil (in 2007).
The Life Insurance Association of Malaysia (LIAM), in releasing its latest figures, says the industry delivered a strong first quarter (January-March) performance with new business sales growing by 14% on weighted premium basis.
Weighted premium is calculated as 10% of single premium plus 100% of regular premium.
The growth, LIAM says, was contributed by a strong performance in regular premium sales which went up by 24% compared to the same period last year.
Single premium business, however, registered a decline of 43% due to the global financial crisis and the decline in interest rate.
By class of business, investment-linked business, normally perceived as savings related products, registered a sharp decline of 23% by weighted premium.
The sale of single premium investment-linked declined from RM584mil in the first quarter of 2008 to a mere RM48mil in the corresponding period in 2009.
Traditional business, normally perceived as protection related products, on the other hand registered a strong growth of 43% during the period as opposed to similar quarter last year.
The sales of group insurance business remained fairly static with total premium of RM652mil compared to RM653mil a year earlier, LIAM says.

Key growth drivers

Koh said the two key growth drivers for the industry for the second half will still be the distribution channel as well as products.
“For us, the second half of the year will be an exciting period. Apart from continuing with our strategy to further enhance the productivity and professionalism of our 17,000 agency force, we will be distributing our products through the bancassurance channel under the financial sector liberalisation plan.
“Great Eastern is now able to have bancassurance tie-up with all the banks including foreign banks in Malaysia and hope to sell its first policy within the next one to two months,” he adds.
As far as distribution channel is concern, Koh says bancassurance is set to grow faster after the liberalisation as there is now no restriction of insurance companies tying up with banks to enhance their sales.
On the possible and likely challenges for the industry, Tee says it is the increasing claim trends from motorists, especially on bodily injury as well as from motor theft.
“We believe that the most important step that needs to be taken to address these issues is to practice prudential underwriting and to have in place strong claims management and underwriting processes,” he adds.
Koh says one of the challenges is for agents to advise consumers on the importance of financial planning to meet their future goals since people tend to be very prudent in their spending during the current difficult times.
As such, it is important that agents are professional and have the required knowledge and competency to play that role, he explains.
Chan views the state of the economy as a challenge for the industry. “The positive news is that the Government has announced numerous stimulus plans to help drive economic growth but the pace of growth may be impacted by external factors among which is the recovery of our export markets.
“Also, equity markets have not stabilised and should they continue to be volatile, it will impact investment income for insurers,” Chan says.