Takaful in Malaysia


Islamic insurance, namely Takaful, is a modern and innovative approach to managing the demand for an instrument that can mitigate an individual’s exposure to specific types of risk. Literally translating to ‘solidarity’, Takaful is a Shariah-compliant arrangement whereby policyholders, as a collective enterprise, pool together their resources in order to aid other members against losses. As opposed to transferring losses to an insurance company which is practiced by conventional insurance, Takaful policyholders distribute said losses amongst themselves.

The Takaful Industry: Malaysia

Top Takaful Products

Six most popular Takaful products (Source: Malaysia Takaful Dynamics Central Compendium 2015)

Malaysia is leading the Takaful sector in the Association of Southeast Asian Nations (ASEAN), according to Bank Negara Malaysia, dominating about two-thirds (71%) of the market share. Due to government support and positive response from various demographics, a potential for strong growth does exist, as was seen in 2015. Malaysia houses 12 registered Takaful operators to date and around 88, 895 (as of 2014) Takaful agents offering Family and General Takaful services.

In Malaysia, the Takaful industry grew more rapidly than that of its conventional counterparts, resulting in an 8.3% and 9.7% growth within General and Takaful services respectively, post-June 2015. Contrarily, conventional General and Life insurance only saw a growth of 6.6% and -0.4% respectively.

In 2014, Malaysia’s Takaful industry constituted net contributions income worth RM 6,330.6 million whereas the total amount of fund assets stood at RM 22,746 million. In that same year, about 9.1% of Malaysia’s total insurance assets was represented by Takaful and RM 2,699 million were paid by Takaful providers in net claims and benefits. In terms of compounded annual growth rate (CAGR) in the past few years, Takaful has witnessed a rate of 12.4% as compared to conventional insurance’s CAGR of 7.8%.

From a starting amount of just RM$ 1.4 million in 1986 in its asset base, the industry has shown an exponential increase to approximately RM$ 23 billion in 2014.


The robust growth is owed to a rise in market participants including agents, consumers and players, as well as a steady capacity-building infrastructure. However, despite the surge, the penetration rate of Malaysia’s Takaful sector is quite low, recorded at 5.2% of gross domestic product (GDP) in 2014 unlike its export-driven counterparts, Hong Kong and Singapore, which are at 16% and 9.7% of their GDP respectively. The major reasons for such a minimal amount could be attributed to:

Further product innovations, the ability to discover untapped markets and widespread distribution coverage amongst others, will likely spearhead Takaful’s growth. Also, Malaysian Takaful providers are extended minimum capital requirements, step-by-step deregulation of tariff rates and risk practices following the recent adoption of risk-based capital in Takaful regimes.

As a whole, Saudi Arabia constituted half (55%) of gross Takaful contributions, from the global Takaful market which totaled to US$ 14.7 billion in 2014. Malaysia and Indonesia accounted for almost one-third (27%), whereas the Gulf Cooperation Council (GCC) countries contributed 10%.

The total net contributions from Family Takaful products in Malaysia reached RM$ 4.8 billion when compared to other products. Family Takaful takes up two-thirds of Malaysia’s industry whereas General Takaful covers the rest.

The size of fund assets in conventional insurance surpassed that of the Takaful segment by 10 times, however, in relation to the actual growth rate of the fund assets, both General and Family Takaful products’ growth exceeded Life and General insurance by almost 5 times in the past few years.

Source: Malaysia Takaful Dynamics Central Compendium 2015, Page 36
Source: Malaysia Takaful Dynamics Central Compendium 2015, Page 35


Various challenges and issues crop up in the Takaful sector.

  • Immense competitive elements in the form of well-equipped and established market players in order to stay viable in the industry are present, which could result in aggressive competition, although consumers may have a wider range of prices and services to choose from.
  • Takaful providers face the pressure to efficiently and effectively cater to their customers’ demands for better products and create competent delivery channels.
  • The government of Malaysia is keen on promoting Takaful and projecting Malaysia as a Takaful and Re-Takaful hub in the ASEAN by introducing various regulatory and legal frameworks to improve capacity building.

Takaful providers in Malaysia are also examining their business models and outlining future business transformation plans of action. In order to progress, the players in Malaysia’s Takaful industry need to re-evaluate strategic areas to move in the direction of sustainability and long-term growth.

Areas to Work On

In order to progress, the players in Malaysia’s Takaful industry need to re-evaluate strategic areas to move in the direction of sustainability and long-term growth.

  • The industry needs to stray away from their conventional insurance peers and develop distinguishable business strategies
  • Focus on reinventing and innovating constantly, as well as the advancement of capabilities in human capital
  • Collaborate and form connections with other relevant operators and players in the market, domestically and globally