Insurers in Brunei Darussalam are aiming to increase penetration rates in a number of key segments of their industry, looking to boost growth in what is already a highly competitive operating environment. However, to do so they will likely need to lift the sector’s profile among their potential client base.
According to data from the Autoriti Monetari Brunei Darussalam (AMBD) – the regulatory agency for the Sultanate’s financial markets including the insurance sector – as of the end of the third quarter of this year, there were four takaful policy providers and nine conventional operators, with more than 600 agents acting as their representatives.
While there has been a steady rise in some segments of the market, with total premiums jumping by 65% over the past seven years, this growth has not been even. There has been a sharp increase in business coverage and motor insurance, reflecting the expansion of the economy in the first instance and the higher number of cars on roads in the latter, but penetration rates are lower for other product lines.
Growing acceptance of takaful products
Another significant change in recent years has been the growing acceptance of takaful products. According to data from the AMBD, assets held by takaful providers more than doubled between March 2011 and June 2013, rising from $150m to $349m, while growth on the conventional side was slower, with assets increasing from $680m to $700m.
Expansion in the takaful segment is line with broader financial sector trends – Islamic banks now hold more than one third of assets and deposits in the Sultanate’s banking industry.
Takaful has demonstrated growth in the life insurance segment, although overall this area of the market remains under-developed. Three conventional providers (American International Assurance, Great Eastern Life Insurance and Tokio Marine Life Singapore) and a single sharia-compliant firm (Takaful Brunei Keluarga) combined cover less than 20% of the population. The life segment accounted for $21.1m of $66.8m gross premiums as of the beginning of the third quarter, according to AMBD data.
In part, the slower take-up of life insurance, along with some other products such as health coverage, is the result of the generous social security net provided by the government, which includes coverage for most medical treatment, a pension scheme, and assistance in housing and other services for many lower-income earners. This high level of social support has meant many Bruneians have little incentive to buy life or medical insurance.
Providing another net
Members of the industry are hopeful that the establishment of a new umbrella group to represent the sector will help raise both the profile of the industry and awareness of the benefits of products it offers. On November 14, as part of Takaful and Insurance Day, the launch of the Brunei Insurance and Takaful Association was formalised. Among the aims of the group are to highlight the importance of financial planning and encourage greater use of insurance or takaful as part of that planning process.
Better promotion could give the market a boost, but association members will perhaps be aided in the process by the state, which in the coming years may find the rising cost of maintaining a robust social security net a strain on its budget. With both life expectancy and health costs rising, the state could look to the private sector to take up a more active role in financing retirement and medical benefits.
Though the market share of conventional insurance has slipped as takaful products have gained greater acceptance, both have the capacity to maintain their growth in the coming years, in line with the expansion of the Sultanate’s economy and the potential offered by a client base that is still largely untapped.