The impact of InsurTech on the firm performance and financial sustainability of insurance companies and Takaful operators in Malaysia : A thesis submitted in partial fulfilment of the requirements for the Degree of Doctor of Philosophy at Lincoln University

Abstract

Over the last decade or more, there has been substantial growth in digital innovation, especially in financial technology (FinTech). A subdimension of FinTech, insurance technology (InsurTech), was built to create solutions for the insurance sector based on the technological approach. InsurTech start-ups adopt a user-friendly approach, build a close relationship with insurance customers, and offer a service where the client is protected in all respects. Malaysia’s digital economy grew at an exponential rate to RM66.22 billion in the first half of 2024, accounting for 22.6% of the country’s gross domestic product (GDP). According to a report from the World Economic Forum, Malaysia is at the forefront of adopting industry 4.0 technology, which includes robots. From insurers to advanced technology developers, leading multinational companies have relocated their Asia-Pacific “high-value, high-impact” central operating models to Kuala Lumpur, using Industry 4.0 technologies and the information and communications technology skill pool. This study examines the impact of InsurTech on firm performance and the financial sustainability of insurance companies and takaful operators in Malaysia. Data from 51 registered insurance companies in Malaysia, with the sample spanning from 2008–when the FinTech movement gained popularity following the 2008 global financial crisis–to 2021. The sample period covers major financial issues, economic downturns and the Covid-19 pandemic. This study uses six indicators to measure the firm performance and financial sustainability, i.e. InsurTech, liquidity, financial efficiency, financial stability, solvency, and macroeconomics. This study uses a two-step system GMM analysis to examine the effect of InsurTech on performance indicators (return on assets, return on sales, insurance performance measurement and operating self-sufficiency), insurance characteristics, government interventions and the impact of the Covid-19 pandemic in Malaysia. This study runs the random effect/fixed effect models as a comparison. The two-step system GMM results show that there is no relationship between financial stability and firm performance or between solvency and financial sustainability. In contrast, the results indicate that InsurTech, liquidity, and financial efficiency impact firm performance and the financial sustainability of Malaysia’s insurance companies and takaful operators. The empirical findings indicate that InsurTech companies and insurance characteristics adversely affect the insurance performance measurement and operating self-sufficiency of insurance companies and takaful operators in Malaysia, where takaful operators are more affected than insurance companies. InsurTech and tax incentives have no impact, but InsurTech and the Covid-19 pandemic negatively affect firm performance and the financial sustainability of insurance companies and takaful operators in Malaysia. Through investment in technology, the insurance industry gains a profitable return by having InsurTech in the value chain, reducing manual operations costs and co-integrating with other financial industry players. The financial measurements and their relationships in this study contribute to the insurance industry's growth in Malaysia, with the adoption of advanced technology in insurance services that can improve profitability. Specifically, the study investigates the interactions between financial aspects to provide stakeholders, policymakers, and the insurance industry with a comprehensive understanding of financial and investment decisions.