The motor insurance industry of Malaysia is set for notable gains over the next few years, growing to US$3 billion in 2027 with a compound annual growth rate (CAGR) of 9.6% in terms of direct written premiums (DWP).
According to GlobalData’s insights, the sector has bounced back with an annual growth rate of 9.2% in 2022 following three straight years of decline from 2019 to 2021.
Recovery was supported by an increase of vehicle sales, with the market growing by 41.6% in 2022 compared to a 3.9% downturn in 2021, as per figures from the Malaysian Automotive Association (MAA).
Another factor for this growth spurt was the country’s National Economic Recovery Plan in June 2020 that provided 100% sales tax exemption on the purchase of locally assembled vehicles and a 50% exemption on imported vehicles.
This tax break was effective until June of last year; however, the registration period for the purchase of vehicles was further extended to March 2023 owing to the continued shortage of semiconductors.
This, in turn, resulted in a year-to-date sales volume growth of 12.3% in May 2023.
The motor insurance sector of Malaysia is forecast to record an annual growth of 7.6% this year, thanks to economic recovery and initiatives by the government to increase the sales of vehicles.Prasanth Katam – GlobalData insurance analyst
The country’s economy is expected to expand by 4% this year and another 4.4% next year, which will further boost the automotive sector’s sales.
Despite a growth in premiums, insurers in Malaysia will need to evaluate their risk exposure due to an increase in accident claims, increased frequency of natural calamities and rising inflation, which has significantly increased the cost of repairs.
To mitigate the impact of increasing claims and reduce fraudulent claims, Malaysian insurers are adopting technologies, such as telematics and artificial intelligence (AI). AI is helping insurers to identify fake accident claims or claims that are inflated.
In June 2020, the government launched the National Economic Recovery Plan ‘Pelan Jana Semula Ekonomi Negara (PENJANA) to provide 100% sales tax exemption on the purchase of locally assembled vehicles and a 50% exemption on imported vehicles.
The tax exemption was effective until June 2022, however, the registration period for the purchase of vehicles was further extended to March 2023 owing to a shortage of semiconductors. According to MAA, year to date sales volume for May 2023 grew by 12.3% as compared to the same period last year.
In 2022, the number of paid claims increased by 22.5% as compared to the previous year due to an increasing number of road accidents and natural calamities. As per the Ministry of Transport, more than 545,588 road accidents took place in 2022.
Furthermore, the value of paid claims increased to $1.1 billion in 2022 from $988 million in 2021 due to an increase in the cost of claims.