INSURANCE SERVICES MALAYSIA INDUSTRY INSIGHT. General Insurance Product Premium Distribution & Retention

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1 INSURANCE SERVICES MALAYSIA INDUSTRY INSIGHT General Insurance Product Premium Distribution & Retention Industry Insight Issue 4 : July 2013

2 General Insurance Product Premium Distribution & Retention Table 1.0 Market Share by Line of Business (General Insurance) Market Share & Year/ Market Share AAGR Standard Growth Fire 19% 19% 16% 17% 17% 5.7% 6.4% % MAT 11% 10% 12% 11% 10% 6.4% 6.6% % Medical and Health 5% 5% 5% 6% 6% 9.9% 10.7% % Misc 15% 14% 13% 13% 13% 5.6% 6.2% % Motor 43% 44% 45% 46% 46% 10.3% 10.4% % Personal Accident 7% 8% 9% 8% 8% 9.7% 9.9% % Total 8.3% 8.4% % In 2012, general insurers contributed about 90% of market share in terms of written premium in comparison to their counterparts, the general takaful operators who made up 10%. From , Motor remained as the prominent line of business with a market share of 43%-46%, followed by Fire (16%-19%), Misc (13%-15%), MAT (10%-12%), Personal Accident (7%- 9%) and Medical & Health (5%-6%). Meanwhile, growth in GWP (Gross Written Premium) by for all lines of business depicts an increase of 7.9%. Table 2.0 MAT & Misc. Class Market Share Misc MAT Bonds 2.8% Aviation -0.7% CAR & Engineering 6.1% Cargo 1.7% Liabilities 5.6% Marine Hull 1.1% Others 3.8% Offshore OR 14.6% WC & EL 2.5% Total 5.0% Total 6.0% Further examination of Misc. and MAT class revealed that CAR & Engineering and Offshore OR recorded the highest of 6.1% and 14.6% respectively. Table 3.0 Market Share by Distribution Channel Market Share & Growth Year/ Market Share (%) A.Direct Business Channels A.1)Direct Client / Ceding A.2)Internet (200.8) A.3)Bancassurance B.Agents B.1)Registered Agents B.2)Motor Vehicle Franchise C.Insurance Brokers C.1)Foreign Broker (28.7) C.2)Local Broker D.Others (%) AAGR (%) Standard (%) Despite the introduction of 10% rebate in premium to promote direct channel in July 2009, Agents continue to be the primary distribution channel for general insurance products. Yearly GWP market share for Agency channel is stable in the circa of 60%. However, Direct channel shows a declining trend of 21.5% (2008) to 19.1% (2012). Meanwhile, Insurance Brokers channel has been stagnant for the observed years; in the region of 15%. Industry Insights : Issue 4 pg. 2

3 In regards to the GWP growth, for Agent is 8.6% followed by Insurance Brokers ( ; 8.4%) and Direct ( ; 4.3%). The higher for Others of 9.9% is attributed by unknown element mostly through unstandardized data submission to ISM. By further drilling down to the Agents distribution channel, Motor Vehicle Franchise contributed to the growth which documented of 17.1%. For the Insurance Brokers, high volatility of was noted in the growth for Foreign Broker from the year 2008 to the year This resulted in the movement of (28.7%) to 75.9%. As for the Local Broker, market share was maintained over 90% and documented a growth of 9.5%. Table 4.0 Correlation of Coefficient by distribution channel Correlation A.Direct B.Agents C.Insurance D.Others Brokers A.Direct 100.0% B.Agents 84.1% 100.0% C.Insurance Brokers 84.8% 99.9% 100.0% D.Others 43.4% 72.3% 73.8% 100.0% Table 4.0 shows the correlation between the distribution channel s GWP movements from 2008 to The linear relationship between Direct and Agent/Insurance Brokers is at 84%; this indicates a strong positive linear relationship between the channels. However, Agent and Insurance Brokers have a more sound relationship at 99%. The correlation concludes that the non-direct intermediaries (with an exception of Others) have more common characteristic in developing GWP growth. The Direct channel however, have a more different characteristics characterised by the effort in the industry in driving sales; this in effect shows a lower relationship against the other distribution channel. Graph 1.0 usted by distribution channel and line of business The Agents channel which has a total growth of 8.6% in are more focussed on personal lines product namely Motor ( ; 9.4%), Personal Accident ( ; 9.4%), and Medical & Health ( ; 7.4%). Meanwhile, for commercial lines, growth is at of 7.4% for Fire, 3.4% for MAT and 4.2% for Misc. Insurance Broker which traditionally focuses on commercial line had a growth of 8.4%. The growth in the Insurance Broker GWP are primarily contributed by Medical and Health ( ; 11.9%), MAT ( ; 9.7%), Misc. ( ; 6.6%), and Motor ( ; 5.9%). Industry Insights : Issue 4 pg. 3

4 Dependency on Agents and Insurance Brokers is still high. This was reflected in the growth in Direct channel which was low at of 4.3%. All lines of business registered lower compared to Agents and Brokers except for Misc. which reported a higher growth in of 5.4% in comparison to Agents ( 4.2%) A contributing factor in the growth of the Direct channel is the growth in Motor of 8.2% and Personal Accident of 7.0%. For the Others distribution channel, it is mostly affected by the Motor business which had a growth in of 48.8%; the increase is contributed by the industry members realization of MMIP business as an Others channel. Graph usted by distribution channel and MAT/Misc. The Misc. line which recorded a growth of at 5.0% is distributed via the Direct channel mainly on CAR & Engineering and Liabilities, whereas, the Agents channel is more concentrated for the Liabilities line. On the other hand, Insurance Brokers are more evenly distributed for all Misc. line. As for the Others channel, Liabilities contributed negatively towards the growth of this channel.. MAT registered a 6.0% growth in which was distributed mostly by the Insurance Brokers focussing on Offshore OR line of business. An increase of 1.7% was noted for the Cargo line of business which was distributed by the Others channel. Industry Insights : Issue 4 pg. 4

5 GROSS WRITTEN PREMIUM RETENTION Table 4.0 Gross Written Premium retention by line of business Line of Business Year AAGR Standard WC & EL 90.3% 90.4% 91.1% 91.9% 92.1% 0.5% 0.5% % Motor 'Act' 94.2% 93.9% 84.2% 84.4% 85.9% -2.3% -2.2% % Motor 'Others' 93.6% 93.7% 89.1% 88.2% 88.4% -1.4% -1.4% % Total Motor 93.7% 93.7% 88.6% 87.8% 88.1% -1.5% -1.5% % Medical & Health 90.1% 85.6% 86.3% 88.4% 85.7% -1.2% -1.2% % Personal Accident 85.0% 81.9% 83.3% 84.3% 84.2% -0.2% -0.2% % Cargo 57.7% 57.0% 57.7% 61.0% 59.0% 0.6% 0.6% % Others 61.1% 55.6% 54.8% 58.8% 60.1% -0.4% -0.2% % Bonds 49.3% 47.7% 56.3% 54.6% 53.5% 2.1% 2.4% % Fire 48.5% 47.6% 49.1% 50.1% 50.1% 0.8% 0.8% % Liabilities 38.4% 39.6% 40.3% 42.2% 43.0% 2.9% 2.9% % CAR & Engineering 25.8% 25.3% 26.7% 25.0% 23.9% -1.8% -1.7% % Marine Hull 18.9% 15.4% 12.8% 21.0% 19.3% 0.5% 5.2% % Offshore OR 5.8% 4.3% 3.3% 2.8% 3.2% -13.8% -12.6% % Aviation 3.1% 0.0% 1.3% 1.7% 4.3% 8.1% % % TOTAL 70.6% 70.0% 69.0% 69.3% 69.3% -0.5% -0.5% % Overall, the industry s premium retention was reduced by 0.4% usted. Almost all lines of business registered reduction in retention except for Cargo, Bonds, Fire, Liabilities, and Marine Hull line of business. The variation in retention of premium is noted to be more volatile in the following lines of business:- Marine Hull (Standard : 0.397) Offshore OR (Standard : 0.179) Aviation (Standard : ) This is due to the nature of the risk exposed in Marine Hull, Offshore OR and Aviation. In the meantime, total Motor GWP retention has decreased by 1.5% in due to the initiative by some insurers to cede out the risk to reinsurers. In essence, the industry is maintaining a moderate risk environment by being prudent in the nature of business being underwritten and the implementation of RBC. Liabilities and Bonds saw an increase in premium retention by 2.8% and 1.9% respectively due to the profitability and nature of risk of these line of business. Key takeaways:- Medical & Health, Motor and Personal Accident line of business showed the most year-over-year growth in of 8.3%, 9.8% and 9% respectively. This indicates that Personal Line businesses experience a higher degree of growth as compared to the commercial line of business. Agents and Insurance Brokers are still the main distribution channels and contribute to the growth of the GWP. At the same time, Motor Franchise holders contribution to GWP in the Motor line of business is appreciating due to the introduction of new vehicle models and increase in vehicle sales. This is further supported by Table 5.0 and Table 6.0 below:- Industry Insights : Issue 4 pg. 5

6 Table The growth in the number of Model Release/ Refresh by Origin Makes Origin No of Model Release/Refresh AAGR Standard American % 100.3% % China % 10.8% % Continental % 15.7% % Japanese % 19.4% % Korean % 6.1% % Malaysian % 1.5% % Total % 9.6% % Sources: ISM Automotive Business Intelligence Database The number of model release/refresh for the period increase by 4.9% in. This is highly attributed by the Japanese Makes Origin which shows an of 6.3%. Table Summary Of New Passenger & Commercial Vehicles Registered In Malaysia. Vehicle Type Vehicles Registered In Malaysia. AAGR Standard Passenger Cars 497, , , , , % 2.8% % Commercial Vehicles 50,656 50,563 61,562 65,010 75, % 10.9% % Total 548, , , , , % 3.6% % Sources: MAA While the number of model release/refresh are increasing, the number of sales also increase by ; 3.2%. It is a twofold contributor where Passenger Cars have grown by 2.5% and Commercial Vehicles by 9.5%. With the changes in the areas of commission for direct channel for Motor line, the growth in Direct business is mostly contributed through the Motor line. The growth in Agent channel is attributed by the Motor Franchise Holder and also in the Personal Accident line. The relationship between Agents and the Insurance Brokers is almost perfect. This portrays the importance of Intermediaries in the general insurance for market penetration. GWP retention by company is reducing. This is in relation to the lower retention of Motor, Medical & Health, CAR & Engineering, Offshore OR and Aviation line of business. For Other line of business such as WC & EL, Cargo, Bonds, Liabilities, Fire and Marine Hull lines an increase in retention was observed. Formulae/Definition Compound Annual Growth Rate is the year-over-year growth rate of an investment over a specified period of time. It is calculated by using the following formulae : ) )) )) AAGR: Average Annual Growth Rate The average increase in the value of an individual investment or portfolio over the period of a year It is calculated by taking the arithmetic mean of the growth rate over two annual periods. Standard : Standard deviation is applied to the annual rate of return of an investment to measure the GWP volatility. Standard deviation is also known as historical volatility and is used by investors as a gauge for the amount of expected volatility : Risk usted Compound Annual Growth Rate is used in order to take into consideration the volatility risk within the observation year = Compound Annual Growth Rate *(1-Standard ) Industry Insights : Issue 4 pg. 6

7 GWP retention= Net Written Premium/Gross Written Premium Reference Data sources: ISM Knowledge Management Services Market Performance (General Insurance) ISM Distribution Channel Statistics ISM Automotive Business Intelligent Malaysia Automotive Association (MAA) Industry Insights : Issue 4 pg. 7