Life Insurance and Family Takaful Framework

On 7 November 2013, Bank Negara Malaysia (the Bank) published a concept paper on the Life Insurance and Family Takaful Framework (Framework) that sets out planned reforms to support the long-term development of the life insurance and family takaful industry. The Bank has received numerous responses and feedback gathered during a two-month public consultation period. These have been carefully considered and deliberated by the Bank to ensure that the interests of industry stakeholders and consumers are well balanced and safeguarded.

The Framework aims to promote innovation and a more competitive market supported by higher levels of professionalism and transparency in the provision of insurance and takaful products and services. This will be achieved through specific initiatives introduced under the Framework, which can be broadly summarised under three main pillars as follows:

a) gradual removal of limits on operational costs to promote product innovation while preserving policy/certificate value
Life insurers/family takaful operators will be given greater flexibility to manage their operating expenses, commensurate with their business strategy. However, consumers’ interests will remain protected through appropriate safeguards that will preserve their policy/certificate value;

b) diversified distribution channels to widen outreach
Life insurance/family takaful products will be accessible to consumers through a wider range of delivery channels that are most convenient and appropriate. Diversified distribution channels can also contribute towards lowering the cost of life insurance/family takaful products by promoting consumer choice and competition in the market; and

c) strengthened market conduct to enhance consumer protection
The level of professionalism of intermediaries will be enhanced to ensure consumers are given proper advice. At the same time, initiatives to facilitate informed decision making by consumers will be further pursued by strengthening product disclosure standards with greater transparency and clarity in order for consumers to better understand product features. This will be complemented by mechanisms introduced to facilitate meaningful and effective product comparisons.

Collectively, the initiatives under the Framework are expected to spur the innovation of a wider range of both products and delivery channels to suit diverse consumer needs based on individual risk appetites, financial goals and levels of financial capability. This in turn will contribute towards the broader objective of reducing the protection gap in Malaysia in line with efforts to increase the penetration rate to 75 percent by year 2020 (2014: 55.5%).

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