Bank Negara Malaysia (BNM) is seeking feedback on its exposure draft on the Licensing and Regulatory Framework for Digital Insurers and Takaful Operators (DITOs), as it prepares to issue up to five DITO licenses next year.
The exposure draft, released after incorporating market feedback on a related discussion paper received in February, outlines the proposed framework to facilitate the introduction of DITOs in Malaysia. It looks specifically at licensing and application procedures as well as eligible business models and distribution channels. BNM will receive feedback until the 28th April 2023.
DITO aspirants will need to submit a comprehensive five-year business plan, which will include, among others, their strategy to manage technology and cyber risks, including protecting consumer data and authenticating online transactions.
The minimum paid-up capital for a licensed DITO is set at RM40 million (US$8.87 million), however, operators are given a leeway of three to five years, known as a foundational phase, which is also accorded to digital banks. During the foundational phase, lower minimum paid-up capital requirements and more flexible regulatory treatments will be applied to DITOs.
Should DITOs fail to demonstrate credible prospects for long-term viability or meet higher prudential standards consistent with those applied to all existing licensed insurers and Takaful companies at the end of their foundational phase, they will need to implement an exit plan according to conditions set out in the exposure draft.
The exposure draft recognizes a diverse range of business models, including:
- DITOs opting for full assumption of insurance/Takaful risks (by leveraging on appropriate risk-transfer mechanisms to manage their underwriting capacities);
- DITOs administering risk-sharing arrangements with fresh approaches to respond to the insurance/Takaful protection needs of consumers; and
- DITOs serving as intermediaries to connect consumers with insurers and Takaful operators), without assuming insurance/Takaful risks directly.
Intermediaries such as enablers, agents, brokers and managing general agents are scoped out from this framework, as these intermediaries do not assume any insurance/Takaful risks and have no obligation under the insurance policy/Takaful certificate.