The impact of the COVID-19 pandemic is expected to cause the Malaysian general insurance industry to contract by 2.2% in 2020, according to a report by GlobalData.
This is mostly due to weak consumer demand and suspension of economic activity due to the lockdown restrictions caused by the pandemic.
According to GlobalData, it has revised Malaysia’s general insurance forecast, taking the pandemic into account. With the latest data, the sector is expected to grow at a compound annual growth rate (CAGR) of 2.4% from 2019 to 2024, compared to the earlier forecast growth of 4.9%.
“The Malaysian economy is projected to contract by 4.9% in 2020, which will adversely impact consumer spending,” said Sangharsan Biswas, insurance analyst at GlobalData. “The recent floods in the country will further dampen economic growth, resulting in lower premiums for general insurers.”
The slowdown is most evident in the motor insurance business, which accounted for 48.3% of the total general insurance premium in 2019. The Malaysian Automotive Association (MAA) reported that new vehicle sales were lower by 41.1% during January to June, compared to the same period in 2019, due to lockdown restrictions and stalled production.
Despite government efforts to improve automobile sales through sales tax exemptions, the uncertainty related to economic recovery and weak domestic demand is expected to impact new premium collections for motor insurers, the report said
A similar decline was observed in the already-stagnant property insurance market. Data from the National Property Information Centre (NAPIC) showed that property sales by value decreased by 31.5% in the first half of 2020. Decline in construction activity and the reluctance to purchase residential property due to the current economic scenario have impacted the growth of property insurance business, the report said.
Meanwhile, Bank Negara Malaysia (BNM) is looking at ways improve the business potential of the country’s insurance business. BNM is introducing measures such as detariffication of fire and motor insurance business lines and promoting digitization to enhance customer interaction and improve the operational practices of insurers.
“Despite the regulatory push, the recent surge in infection rate across the country is expected to further dampen growth prospects,” said Biswas. “Weak export demand and uncertain economic scenario are expected to limit the short-term growth potential of the general insurance business.”
