Bank Negara Malaysia on November 26 released an exposure draft on the licensing and regulatory framework for digital insurers and takaful operators (DITOs). The central bank is seeking written feedback on the proposed rules, which aim to facilitate the entry of DITOs that can offer compelling value propositions to improve inclusiveness, competition, and efficiency in the insurance and takaful sectors.
What the exposure draft covers
The exposure draft sets out specific rules on acceptable business models and distribution methods for DITOs. It also details licensing and application processes. The framework is designed to benefit policyholders while promoting sustainable business practices. DITOs will be required to comply with the Financial Services Act of 2013 or the Islamic Financial Services Act of 2013. According to Bank Negara Malaysia, DITOs must conduct their insurance or takaful business entirely through digital or electronic means.
“The proposed framework for facilitating the entry of DITOs in Malaysia that can provide compelling value propositions to realize inclusiveness, competition, and efficiency was highlighted in the exposure draft,” the central bank said in a statement.
New business models expected
The central bank anticipates that new types of businesses and operational models will emerge as a result of the digital-only requirement. These models are expected to better serve the demands of a wide range of consumers. Bank Negara Malaysia said it keeps a focus on good risk management and consumer protection while promoting these technologies.
“We expect that DITOs will introduce innovative products and distribution channels that can reach underserved segments of the population,” a Bank Negara Malaysia official said.
Licensing timeline and number of licenses
Up to five licenses may be granted to applicants who meet all standards. Bank Negara Malaysia stated that it intended to finalize the policy paper and invite license applications in 2023. The central bank is accepting alternative suggestions as well as clarifications or elaborations in response to the exposure draft.
The exposure draft follows a discussion paper released earlier this year. That paper laid the groundwork for the current proposals. The central bank has been consulting with industry stakeholders throughout the process.
Consumer protection and risk management
Bank Negara Malaysia emphasized that consumer protection remains a priority. DITOs will be subject to the same regulatory standards as traditional insurers and takaful operators. The central bank said it will ensure that digital channels do not compromise policyholder rights or data security.
“We are committed to ensuring that the digital transformation of the insurance and takaful industry benefits consumers while maintaining financial stability,” the Bank Negara Malaysia official added.
The framework also addresses risk management requirements. DITOs must have robust systems in place to handle operational risks, including cybersecurity threats. The central bank said it will monitor compliance closely.
Industry response and next steps
Industry participants have welcomed the release of the exposure draft. They see it as a clear signal of the central bank’s commitment to modernizing the insurance and takaful sectors. The draft provides a roadmap for companies looking to enter the digital insurance space.
Bank Negara Malaysia is now collecting feedback until a date to be announced. After reviewing the responses, it will finalize the policy paper. The central bank expects to begin accepting license applications in 2023.
The move aligns with broader efforts to digitize financial services in Malaysia. The central bank has previously introduced frameworks for digital banks and digital payment providers. The DITO framework is the latest step in that direction.
The exposure draft is available on Bank Negara Malaysia’s website. Interested parties are encouraged to submit their comments in writing. The central bank will consider all feedback before issuing the final framework.
