A Malay proverb says, prepare an umbrella before it rains, an apt metaphor that encapsulates the importance of having insurance and being prepared before anything happens. Nevertheless, in 2023, only around half of Malaysians surveyed owned life insurance and medical insurance policies. Despite the low penetration rate, the insurance industry still contributed more than 27 billion Malaysian ringgit to the country’s gross domestic product (GDP).
Popularity of medical and motor insurance
The insurance industry in Malaysia is divided into life and non-life, also known as general, insurance. The non-life sector consists of different types of insurance, including medical or health, motor, fire, liability, personal accident, and a few others. In a survey conducted among Malaysian respondents in 2022, medical and motor were the leading types of insurance products owned in the country.
Malaysia has a public healthcare system where its residents can access free or low-cost medical care at government hospitals. The healthcare system, however, runs in conjunction with private hospitals. Without private medical insurance, Malaysians would have to pay a lot more for treatment at private facilities, where patients often get a better standard of care than at crowded public hospitals. This is one of the reasons why medical insurance is popular in the country.
Meanwhile, cars are the preferred mode of transportation for Malaysians. In 2022, there were more than 600 thousand new passenger vehicle registrations in Malaysia. Under the Road Transport Act 1987 law, it is compulsory for vehicle owners to have valid motor insurance. Thus, the net premiums value of motor insurance exceeded more than eight billion Malaysian ringgit in 2022.
Takaful, Sharia-friendly insurance
In addition to conventional insurance, takaful or Islamic insurance is popular among the majority Muslim population in the country. According to Sharia law, the concept of uncertainty or gharar in Arabic is not allowed. Modern insurance goes against this concept, as it has an element of uncertainty where people purchase a policy due to uncertainties or future risks. Moreover, traditional Islamic scholars would constitute insurance as a form of gambling.
With takaful, on the other hand, members contribute money into a fund to guarantee each other instead of paying premiums. Claims made by members are paid out of the takaful fund. In 2021, Malaysia had the third-highest value of takaful assets worldwide. This showed the high demand for Islamic financial services among Muslim consumers in the country.
