Economic and Socio-Demographic Factors that affect Takaful Demand in Malaysia

Abstract

The takaful sector in the Malaysian context has flourished although still young compared to its conventional insurance counterpart. However, the penetration rate and demand of this industry is still at lower rates set by Bank Negara Malaysia (BNM). This paper intends to find out the factors influencing the demand in takaful industry in Malaysia. It is done by investigating the economic factors (income, unemployment rate, inflation rate) and socio factors (life expectancy, educational attainment, urban population). The data for this research were retrieved from the Department of Statistics Malaysia and World Bank website. Thus, this study employed these variables to analyze factors impacting demand of takaful in Malaysia across the period from 1991 until 2020 by using time series regression. It is found that urban population has the highest impact as it has the highest coefficient compared to other independent variables. This study also performed Autoregressive Distributed Lag (ARDL) to investigate the short and long-run relationship between independent and dependent variable. The findings revealed that there is a relationship between life expectancy with takaful demand both in short-run and long-run. In contrast, there are long-run effects on demand of takaful for educational attainment, income, unemployment rate and urban population but not in the short-run. While no relationship is found with respect to inflation rate. Thus, it is hoped that the findings from this study will give impact and contribution towards the existing body of knowledge.