ING and Public Bank Bhd(PBB) new takaful firm aims to be profitable by its fourth year of business as it taps Malaysia's underserved insurance market, and eventually expand into Indonesia and Hong Kong, its owners said today.

The insurer, which received one of four family takaful licences awarded in September, will launch its first product in April in Malaysia where acceptance of takaful is limited and insurance penetration is among Asia's lowest.

'Penetration of life insurance is very low in Malaysia compared so some regional markets. It's an immmature market,' ING Insurance Berhad CEO Nirmala Menon said in an interview.

'We need to get to a stage where its like Taiwan or Korea where each person has 6-7 policies and understands the need to have them.

Malaysia has the world's largest sukuk market and Islamic assets account for about a fifth of the total banking system but takaful has struggled to make a mark in the Southeast Asian country.

There are eight Islamic insurers in Malaysia but the takaful penetration rate was only 10.5 per cent as at June this year compared with 42.3 per cent for conventional insurance, according to central bank data.

The total insurance penetration rate of 52.8 is much lower than Hong Kong's 120 per cent and Japan's 200 percent as estimated by some industry players.

Menon said the joint venture was expected to break even in its third year of business although it has to work to overcome the low awareness and misconceptions about Islamic insurance among Malaysians.

'In the Chinese market, life insurance penetration is close to 80-85 per cent whereas in the Muslim market the penetration is below 10 per cent - so the maximum opportunity is within the booming Muslim market in Malaysia,' she said. Under the takaful model, participants contribute to a takaful fund.

Contributions are separated from the takaful operator's assets and participants have an ownership interest in the fund.

When the fund makes money, the surplus is shared between the participants and, in some cases the takaful operator. When there is a loss, participants could be asked to contribute but the takaful operator will typically provide an interest-free loan.

Public Bank managing director Tay Ah Lek said the joint venture would tap the regional market after it gets its domestic business on a strong footing.

'We see Indonesia as a key market. It is something that we would be looking at very aggressively,' he said. 'We already have a partnership with Public Bank in Hong Kong and that is also an area where there's an ability for us to transport this sort of things.'

Total takaful contributions could reach US$7.7 billion a year by 2012, Ernst and Young forecast. But global takaful contributions are less than 1 per cent of the total insurance premium spend annually, industry lawyers Clyde and Co have said. - Reuters