Licensing and Regulatory Framework for Digital Insurers and Takaful Operators Policy Document

Digital technology advancements have enabled significant transformations in the insurance and takaful sector, through innovative product design, risk-responsive underwriting practices, more efficient claims management processes and seamless services to consumers. Innovative applications of digital technology such as artificial intelligence (AI) including generative AI, machine learning (ML), the Internet of Things (IoT), distributed ledger technology and digital marketplaces have expanded the range and accessibility of insurance/takaful products to the wider population, underpinned by simple and affordable financial protection to meet the diverse needs of consumers beyond traditional protection coverage. The insurance and takaful landscape has also witnessed the increasing partnership between licensed insurers and takaful operators (“ITOs”) with insurtechs offering modular technology-based services across the insurance and takaful value chain. Such partnerships promote innovation through the exchange of expertise as well as greater efficiencies in the licensed ITOs’ operations and processes.

One of the aspirations in the Bank’s Financial Sector Blueprint 2022–2026 is to close protection gaps by advancing digitalisation of the financial sector and elevating the dynamism of the insurance and takaful sector. In achieving this outcome, this policy document sets out the licensing and regulatory requirements for digital insurers and takaful operators. This policy document aims to facilitate the entry of licensed digital insurers and takaful operators (“DITOs”) with strong value propositions to serve the unserved and underserved market, provide competitive offerings and enhance consumer experience via the adoption of advanced digital technology and innovative business models. The Bank expects that the entry of licensed DITOs will increase the dynamism of the Malaysian insurance and takaful landscape by complementing the role and services offered by existing licensed ITOs.

The Bank acknowledges that digital technology and innovative business models bring about a different set of opportunities and risks to the Malaysian financial sector. As such, a balanced approach that facilitates the continuous development of a sound, progressive and inclusive financial system, while safeguarding financial soundness and the interests of policy owners and takaful participants is adopted in calibrating the appropriate licensing and regulatory requirements.

This policy document sets out requirements that account for differences in the business and operating models of licensed DITOs to unlock their full potential, while ensuring appropriate safeguards are in place to manage the associated risks. This includes:
(a) the value propositions required of licensed DITOs in serving the insurance/takaful protection needs of consumers;
(b) the types of business models that can be adopted by licensed DITOs;
(c) application requirements for the establishment and licensing of DITOs; and
(d) regulatory requirements to be observed by licensed DITOs, based on the principles of proportionality and parity 2. These include requirements applicable during the foundational phase and thereafter, among others, the minimum paid-up capital, prudential and business conduct requirements, permissible product distribution channels and physical access points.

As the risks relating to digital insurance/takaful and digitalisation of the insurance and takaful value chain may be different with evolving market conditions, the Bank may review the requirements imposed on licensed DITOs including specific obligations and requirements for licensed DITOs to manage such risks.

This document belongs to Bank Negara Malaysia (BNM). Full access to the original source is available here: https://www.bnm.gov.my/banking-islamic-banking