Building a Takaful from Ground Zero - Part III

Once the right and competent people employed, it is now the period of producing a blueprint of the company which charts short, medium and long term objectives which is incorporated in the business plan. I will elaborate in more detail on the right ingredients of a good business plan for a takaful company later as a separate title.

In general, we need to determine the types of products to be sold, distribution channels to penetrate the market, capital requirement to ensure sustainability of the business and other statutory requirements as prescribed by the relevant authority. In Malaysia, Bank Negara Malaysia is the governing authority whilst Ministry of Finance in Indonesia supervises all takaful companies. Nevertheless, the financial projection or budget is the key element in the blueprint as all initiatives will be derived from it.

As mentioned earlier, we need to establish a strong syariah board as well as syariah unit internally which will oversee the day to day operations of the company in compliance with syariah jurisprudence. Currently, the number of syariah personnel suitable for employment with takaful is rather limited and shortage. There have been incidents of 'pinching' amongst takaful companies due to the demand and supply. We should evaluate the condition seriously and take necessary action to ensure that staff pinching will no longer happen in the future and there's more than sufficient human capital to meet with the increasing demand attributable to significant surge in number of takaful operators.

Subsequently, we need to determine the best takaful model to be adopted. This is crucial as the takaful model is the foundation and center of a takaful company. Cash flow, pricing, expenses, profits and surplus distribution, aqad or contract, etc are determined based on the takaful model. Different model will lead to different results. Common models are Mudharabah and Wakalah however the later is more commonly seen in new takaful established after 1990s. Besides selecting the model, the operator needs to determine the parameters to be adopted and these parameters may differ from product to product depending on business strategy. For instance, we need to determine how much wakalah fees or ujrah to be charged to the gross contribution (premium) to cover for acquisition cost. The net contribution will then be transferred to the tabarru' fund to cater for all claims benefits related expenses. Similarly, we need to also determine the distribution allocation between operators, participants and perhaps retaining in the tabarru' fund should there be surplus arising from the tabarru' fund. Besides, we need to determine the distribution allocation for investment profits as well.

As the takaful model is crucial, it needs to be approved by the authority as well as syariah board prior to its adoption. Extensive simulation must be done by the actuary to confirm whether the model meets with the stakeholders expectation. As takaful is like any other profit making organisation, we need to ensure that the business will generate sufficient return to all stakeholders based on minimum expectation. Shariah board will evaluate from shariah perspective whilst authority will focus on the going concern of the business or solvability of the company.

Building a Takaful from Ground Zero - Part II

Four commonly used categories which shall be developed are:
1. People
2. Product
3. Process
4. Promotion

The question now is which one shall be address first? Obviously, People shall be top of the list as good people is an asset to the company. We have to ensure that the right people are employed and the rest, namely Product, Process and Promotion, shall be easily developed. The right people means those with competent and right skill sets, knowledge as well as attitude. The first two factors may be easily assessed however it is a challenge to choose a candidate with the right attitude. Here, referrals play an important role to assist in the selection of the right candidate.

Prior to the mass recruitment, we shall establish the desired organisation structure for an effective and efficient delivery of services to the customers. During the development of the structure, emphasis must be given to the shariah aspect of the entity. In other words, the entire activities within the organisation must be guided by a center point with solid shariah principles and background. In this respect, it is recommended that a takaful entity must be led by a strong and competent shariah council externally and a shariah advisory team internally.