Insurance laws Malaysia
Malaysia's insurance sector is primarily regulated by Bank Negara Malaysia (BNM), the central bank. The legal framework is comprehensive, covering both conventional insurance and Islamic insurance (Takaful).
Here are the key insurance laws and regulations in Malaysia:
1. Primary Legislation:
Financial Services Act 2013 (FSA 2013): This is the overarching legislation that regulates conventional financial institutions, including insurers and insurance intermediaries. It aims to promote financial stability, foster competition, and protect consumers.
Islamic Financial Services Act 2013 (IFSA 2013): This act provides the legal framework for Islamic financial institutions, including Takaful operators, ensuring Shariah compliance in their operations.
Insurance Act 1996: While much of its content is now integrated or superseded by the FSA 2013, it was a significant piece of legislation for the licensing and regulation of insurers, insurance brokers, and adjusters. Some of its subsidiary legislation, like the Insurance Regulations 1996, still supplement the FSA.
Takaful Act 1984: Similar to the Insurance Act 1996, this act specifically regulated Takaful business, with its principles now largely incorporated into the IFSA 2013.
2. Other Relevant Laws and Regulations:
Labuan Financial Services and Securities Act 2010 (LFSSA 2010) and Labuan Islamic Financial Services and Securities Act 2010 (LIFSSA 2010): These acts govern the licensing and regulation of offshore insurance and related activities in the Labuan International Business and Financial Centre (IBFC).
Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLATFPUAA 2001): This act requires insurers to establish frameworks to prevent money laundering and terrorism financing through insurance activities.
Road Transport Act 1987: This act mandates third-party liability insurance for motor vehicles using public highways.
Workmen's Compensation (Foreign Workers' Scheme) (Insurance) Order 1993: This order covers foreign workers for employment and non-employment injuries.
Malaysia Deposit Insurance Corporation Act 2011: This act establishes the framework for deposit insurance, which can also include certain insurance products.
Civil Law Act 1956: This act has relevance as some aspects of Malaysian insurance law traditionally followed English common law principles, subject to local interpretations and statutory provisions.
Key Regulatory Aspects and Provisions:
Licensing: Insurers, Takaful operators, insurance brokers, and adjusters must be licensed by BNM (or the Labuan Financial Services Authority for offshore entities).
Capital Requirements: Licensed entities are required to maintain minimum paid-up capital or surplus of assets over liabilities.
Solvency Margins: Insurers must maintain specific solvency margins, which are subject to ongoing revisions (e.g., Risk-Based Capital (RBC) 2 framework taking effect in 2027).
Non-Admitted Insurance: Generally, non-admitted insurance is not permitted, meaning insurance must be purchased from locally authorized insurers, with some exceptions.
Compulsory Insurance: Key compulsory insurances include:
Motor third-party liability
Workmen's compensation
Professional indemnity for insurance brokers, lawyers, and financial advisers.
Policyholder Protection: The laws aim to provide greater protection to policyholders, including provisions for nomination of beneficiaries, interest on unpaid claims, and voidable contracts for misleading statements. The Insurance Guarantee Scheme Fund (IGSF) also exists to partially meet liabilities of insolvent insurers.
Digital Insurers and Takaful Operators (DITOs): BNM has introduced a specific policy document for the licensing and regulatory framework of DITOs, encouraging innovation and greater financial inclusion through technology.
Taxation: Service tax is levied on insurance policies and Takaful certificates, with recent changes in rates.
The Malaysian insurance landscape is continually evolving, with regulators focusing on financial stability, consumer protection, and encouraging innovation and digital transformation within the industry.
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