Leveraging Digital Financial Services to Enhance Financial Inclusion: Strategies for Insurance and Takaful Operators in Malaysia to Embrace Digitalization

The heightened demand for financial protection arising from the COVID-19 pandemic and climate change-related disasters has underscored the need for advanced technological solutions to boost financial inclusion in Malaysia, particularly within underinsured and uninsured communities. This paper explores the impact of transitioning to digital financial services as a strategic avenue to enhance financial inclusion in the country. Using survey data from the Global Findex and applying a probit regression model, our findings reveal several statistically significant factors positively correlated with financial inclusion in Malaysia. These factors include engaging in online bill payments, making online purchases, paying bills through an account, conducting transactions via mobile phones, and receiving government transfers into an account. The study highlights the potential of digital financial services to drive financial inclusion, emphasizing the link between access to digital payment methods and the increased likelihood of adopting digital insurance products. In light of these findings, we suggest that insurance and Takaful operators leverage digital services to broaden insurance coverage, particularly among populations historically underserved by traditional channels. This study highlights the importance of policy initiatives encouraging the integration of technology and innovation within the insurance industry, commonly referred to as insurance technology or InsurTech. This research emphasizes the need for policy support to promote InsurTech adoption within the insurance sector, marking a significant step toward engineering a more inclusive and resilient digital financial ecosystem in Malaysia.