Based on a survey conducted in Indonesia among those victims of natural disaster such as tsunami in Acheh, major flood in Jakarta, earthquakes in Bengkulu, Yjogja, etc, surprisingly the result indicated that less than 2% among them are insured with at least one policy whether life or general. The survey didn't touch on whether the coverages are sufficient or not. As a result, most of those victims became poorer compared to their position prior to the disaster. I know a person from Acheh who was a successful goldsmith and among the rich & famous prior to tsunami. Unfortunately, he is now left with no business, properties, assets, etc. Poor him.
Let's imagine if those victims are fairly covered by some kind of takaful/insurance coverages whether life or general policies. I am very sure that they would be fairly or more or less (in terms of assets) the same compared to where they were before the disaster. Their houses will be rebuilt using takaful/insurance claims. Their cars will be replaced, if total loss. Of course, takaful/insurance can't replace any loss of lives but at least some compensation be given in the form of monetary for the family to proceed their life as usual especially if their breadwinner pass away. The compensation can at least ensure that the family can meet their daily needs and perhaps some for future planning.
I am confidence that the recent earthquakes in Padang, Sumatera, Indonesia, will caused hundreds of people poorer and lesser assets. I was told that many of those victims willing to become beggars on the street due to severe financial constraint as a result of the earthquakes.
A manager in Jakarta admitted to me that her family was once amongst the richest in their community. Unfortunately, due to the illness of her father almost all their fortune just vanished within short period of time in order to cover for the medical cost. Despite of all the efforts especially money the father passed away peacefully. She mentioned to me that should she had met me earlier and learn about the medical takaful coverage she strongly believe that she won't end up as a manager in a hotel today with a salary of about only Rp2 million (US$ 200) a month.
A friend of mine in Shah Alam, Malaysia who is also a takaful agent faced the same fate due to 'ignorance' of the benefit of takaful. Surprisingly, despite actively promoting takaful products to his clients he himself failed to realize the benefit himself. He was admitted to a hospital due to a heart attack and not surprisingly he and his family were surprised with an exorbitant medical bill. Significant portion of his hard earned savings just vanished. The treatment continues under post-hospitalization and the bills never stop haunted them. He regretted for not participating any reasonable medical takaful coverage and it's too late to do so after the incident unless for other illnesses.
So let's spread the words around on the benefits of insurances and seek professional advice from those qualified to help you. Act now before it's too late!!!
Monday, November 16, 2009
Friday, November 13, 2009
Is life insurance needed?
Yesterday I had a meeting with a friend who seek for my advice with respect to some coverages offered by several insurance/takaful agents. He was offered medical plus life takaful policies with attractive benefits. The way I approached the matter was as follows:
1. First and foremost, I apologize to him should the questions I was going to pose will offend him. He said not a problem.
2. I asked him that if he dies what will be the outstanding liabilities look like.
3. He described several liabilities or loans nevertheless they are currently fully covered with some kind of insurance covers. For instance, the housing loan is fully covered with mortgage reducing term assurance. As for the new car loan, he confirmed that his wife ('widow') can manage accordingly using her existing income.
4. Next, I asked him pertaining his kids for their education expenses. Those are also taken care by existing education insurance plans appropriately.
5. Besides, he is also a member of the national retirement scheme fund or Employees Provident Fund (EPF) which 'guarantees' a handsomely amount of retirement benefits upon reaching 55. EPF also provides some death and permanent disability benefits prior to age 55.
6. Therefore, my professional and friendly advise to him was that he is not desperately need an additional life insurance cover via a new policy. In other words, it is optional depending on his budget availability.
Similarly, he does not need any additional medical cover as well as he is fully insured or covered by his existing employer.
1. First and foremost, I apologize to him should the questions I was going to pose will offend him. He said not a problem.
2. I asked him that if he dies what will be the outstanding liabilities look like.
3. He described several liabilities or loans nevertheless they are currently fully covered with some kind of insurance covers. For instance, the housing loan is fully covered with mortgage reducing term assurance. As for the new car loan, he confirmed that his wife ('widow') can manage accordingly using her existing income.
4. Next, I asked him pertaining his kids for their education expenses. Those are also taken care by existing education insurance plans appropriately.
5. Besides, he is also a member of the national retirement scheme fund or Employees Provident Fund (EPF) which 'guarantees' a handsomely amount of retirement benefits upon reaching 55. EPF also provides some death and permanent disability benefits prior to age 55.
6. Therefore, my professional and friendly advise to him was that he is not desperately need an additional life insurance cover via a new policy. In other words, it is optional depending on his budget availability.
Similarly, he does not need any additional medical cover as well as he is fully insured or covered by his existing employer.
Sunday, November 8, 2009
New Takaful License in Malaysia
Currently, there are 9 takaful operators competing to capture the market in Malaysia. In the last 6 months the insurance/takaful industry has been notified that Bank Negara Malaysia is considering to offer 2 more new takaful licenses. However, the criteria for the new operators is much stringent compare to the previously. I was told that the paid capital requirement is much larger than the existing requirement, ie. RM100 million. Any investor who can impress Bank Negara with huge capital may stand a better chance for the license. Besides, the new operator must convince the regulator that they can provide cutting edge technology and outstanding expertise to Malaysia and perhaps bring Malaysia for global arena. This is in tandem with the Malaysia Islamic Financial Centre (MIFC) aspiration to position the country as the Islamic Financial Hub. Thus, company with international or global exposure and link may be preferred by regulator. If I can recall, Bank Negara has set 20% market share for the Islamic institutions by end of 2010 therefore the right players must be selected which can boost the takaful market share by Dec 2010.
Based on rumors, media, and friends, applications for takaful licenses came from Great Eastern, Manulife, AmAssurance and several others which I can't verify the authenticity of the information. Surprisingly, Bank Negara has postponed the announcement of the result to year end meaning that the regulator has yet to firm up their decision. Whatever it is, we hope that the outcome is based on fair and prudent judgement by Bank Negara without any unwanted influence by any parties whether internal or external.
Based on rumors, media, and friends, applications for takaful licenses came from Great Eastern, Manulife, AmAssurance and several others which I can't verify the authenticity of the information. Surprisingly, Bank Negara has postponed the announcement of the result to year end meaning that the regulator has yet to firm up their decision. Whatever it is, we hope that the outcome is based on fair and prudent judgement by Bank Negara without any unwanted influence by any parties whether internal or external.
Strategic Planning
I was recently requested by an investor to study the possibility of setting up a new takaful in any strategic country. As it is highly confidential, I am not able to disclose the detail pertaining the request and parties involved. Anyhow, I had provided them with preliminary strategic plan which can provide some guidance in the decision making. Here are the outlines of the strategic plan which I would like to share.
1. Vision
2. Mission
3. Critical Success Factors
4. SWOT Analysis
5. Gap Analysis
6. Strategic Objectives
7. Strategic Initiatives
If the strategic plan is carefully constructed, it will provide a clear future path for the company and each individual in the organisation pertaining their specific role in achieving the corporate goals. The plan will also help in cascaded down the KPIs as part of the Performance Management System.
The strategic plan is a manifestation of the Balance Scorecard based on the four quadrants, ie. Financial, Customer, Process and Learning & Growth.
Monday, October 12, 2009
Farewell Takaful Indonesia
After 2 years and 5 months leading Takaful Indonesia Group, I have decided to take a break and return to Malaysia. This took effect from 16 October, 2009. Nevertheless, the experiences acquired during the tenure was very valuable for my future career. It has given me a hands-on knowledge and experience pertaining the insurance and takaful industry in Indonesia which I can honestly describe as 'lack' of global exposure punch. Nevertheless, in view of it's large population and huge country, I personally wish to conclude that it is a hugely untapped market where investors should see it as a potential for business expansion.
For those who are interested to venture into Indonesia particularly in insurance or takaful business, you may contact me for professional advise and consultation (saifulyazan@yahoo.com). As people say, "preventive is better than cure", I would strongly recommend those investors to do your homework well prior to serious engagement. There may be large gaps between the reality and your expectation, if your fact finding is too premature. Take this as a friendly advise and reminder. Whatever it is, we all believe to "high risk high return" therefore let's ensure that the risk is well calculated risk so that our return is also predictable.
Tuesday, June 23, 2009
Takaful In Indonesia 2008-09
TAKAFUL IN INDONESIA – BUSINESS GROWTH AMIDST ECONOMIC TURMOIL
by Saiful Yazan Ahmad
President Director PT Syarikat Takaful Indonesia
Many economists predict the year 2009 as a challenging year for the corporate world. On the extreme note, it is predicted that the crisis which started in the second quarter of 2008 would prolonged to 2010. Some even speculated that it would eventually head towards stagflation, an economic crisis marked by the persistent inflation combined with stagnant consumer demand and relatively high unemployment.
As the United States still holds the bull by its horn in regards to business and economy, the economic recession which began there swiftly spread out to other developed and developing countries, fast becoming world economic catastrophe. Stock markets, such as Dow Jones, Nasdaq, FTSE, Hangseng and Nikei continued the downfall trend in first quarter of 2009. However, the index prices have shown some optimistic increase recently but economic uncertainty still looms. Prices of commodities are continuously corrected to the low level. Indeed, this economic crisis is the worst ever, since the Great Depression in the United States in 1930.
Big nations experiencing the impact of this financial tsunami are struggling hard to figure out ways to revive the economy. Indonesia as a developing country is definitely no exception. Many companies, regardless of their sizes have been plagued by unemployment and some even have to close down temporarily.
Despite the gloomy atmosphere, insurance players in Indonesia still have reasons to remain optimistic. As there are silver linings in every dark cloud, this crisis breathes fresh opportunities to the insurance industry as well. In 2009, Indonesia’s insurance industry is projected to grow by 5%, in line with the national economic growth which is expected to increase by 5,2% from the previous year. This positive outlook is not only based on the consumer’s continued demand for insurance protection, but also on the immense local market potentials in the insurance/takaful industry which until recently has only reached 11% market penetration rate.
Although it is predicted that 2009 would see a slow-down in the insurance sector and despite declining premium collection at the beginning of 2009 (5%-6%), the industry is anticipating an appreciation in demand for insurance protection with the forthcoming 2009 general election. This is because.the public would most likely seek insurance protection to insure their properties against possible damages that might arise due to any untoward incidents caused by the election process.
On another positive outlook, the Government’s recent regulation, (PP) No. 81 year 2008, also brings an added advantage to the more than 40 general insurance companies in Indonesia with capital below Rp 40 billion. The regulation granted postponement to 2010 and 2014 for conventional insurance companies to fulfill the minimum capital requirement of Rp 40 billion and Rp 100 billion, respectively. This definitely brings great relief to the insurance players as they are allowed more time to increase their capital in stages during the four years stipulated time period. Nevertheless, the minimum capital requirement for insurance companies based on shariah principles or takaful is maintained at Rp 50 billion.
Since 2008, the takaful industry continues to grow despite slowing macroeconomic condition. By end of 2008, there were 51 insurance related institutions operating on shariah principles in Indonesia. Three were full-fledged Shariah insurers, 39 window-based, three retakaful and six takaful and retakaful Shariah brokers. For the year 2008, Takaful Indonesia Group, the biggest takaful group in Indonesia, recorded a remarkable growth with significant improvement on the performance of its two subsidiaries, PT Asuransi Takaful Keluarga (ATK) which manages family takaful and PT Asuransi Takaful Umum (ATU) which manages the general side. Gross contribution of Takaful Indonesia in 2008 rose to 42%, reaching almost Rp 500 billion from Rp 352 billion as compared to the previous year. This improvement is contributed by ATK’s gross collection of Rp 324 billion (65%) and ATU’s Rp 176 billion (35%). The net income of these two Takaful Indonesia’s subsidiaries also improved significantly. For 2008, ATU recorded Rp 7.79 billion in net income, an impressive increment of about 80% as compared to Rp 4.32 billion in 2007. In addition, ATK also registered a gain of Rp 14.06 billion; rising 58% from Rp 8.90 billion recorded the year before. This marked an impressive achievement far exceeding the average growth of the Indonesian insurance industry which at the most only grows 25% yearly.
For the insurance industry in Indonesia, unit link product is obviously the most favorable and much sought-after product in the market. Takaful Indonesia’s subsidiary, ATK also recorded an increase in sales for its own unit link product, amounting to Rp 44.51 billion for the first and second quarter of 2008. Unfortunately, the world‘s unfriendly investment climate did hinder sales of unit link products as the final quarter of last year marked a decreasing demand for unit link products. This downward trend continued to the first quarter of 2009, reflecting the impact of the global financial turmoil. However, the second quarter of 2009 showed a promising time ahead as.the demand for unit-link products has started to rise up again due to renewed customers’ interest.
Amidst the impending global economic crisis Takaful Indonesia is definitely set to continue focusing on the upward business growth. Having wealth of experiences and having achieved outstanding growth in 2008, Takaful Indonesia implements formulated strategies such as repackaging of attractive products and focusing on products which are not too susceptible to the economic changes. ATK’s family takaful’s product like health insurance (Fulmedicare) and education insurance (Fulnadi); and ATU’s general takaful’s product like motor vehicle and fire insurance are widely promoted during trying times like the present. The emergence of new shariah banks in Indonesia has also given new opportunities for bankatakaful business.
Although facing economic crisis, the low market penetration in the shariah insurance industry in Indonesia creates an attractive opportunity for the insurance players to continue to grow and prosper. As market expansion is one of the most effective ways to keep business flowing, Takaful Indonesia tries to reach wider market segment by extending its marketing chain to strengthen it’s 38 branches all over Indonesia. Takaful Indonesia takes continuous effort to reach more customers nationwide by creating effective marketing channels via its cooperation with corporations. In addition to that, synergistic effort is also taken to develop staff professionalism and competencies through consistent training and development. This is necessary as staff professionalism is crucial to deal with the more extended and sophisticated customers’ base. Besides, the emphasis on spiritual aspect is never neglected as it is one of the most important differentiation factors between takaful and conventional players.
Needless to say the low market penetration for shariah insurance in Indonesia is also attributable to several other factors. The majority of the population is still in the low-income bracket. On top of that, society’s awareness on the importance of insurance is still rather low. Efforts is still needed to be directed towards educating the public on both the conventional and shariah insurance, for the market to appreciate the protection aspects that insurance can offer.
In tandem with this spirit, Takaful Indonesia has capitalized on it’s wealth of experiences, having been the pioneer in takaful business in Indonesia and having lead the industry for more than 14 years from its inception. As an appreciation to the public for their continued support, Takaful Indonesia has taken the initiative to produce a premier book on takaful entitled, “Solusi Berasuransi Lebih Indah Dengan Syariah” (Insurance Solution Make Better with Shariah). This book is specially written to cater for the general public at large to promote better understanding on the basic knowledge about takaful business. The demand for such book is obviously huge in view of scarcity of material on such topic in the market.
To optimize the benefits that shariah insurance can offer the public at large, the insurance players, investors, regulators and the society in general should work hand in hand for a mutually beneficial cooperation. Commitments from all stakeholders will undoubtedly help to boost the takaful industry in Indonesia to a higher level and will help to close the gap between the syariah and conventional insurers.
by Saiful Yazan Ahmad
President Director PT Syarikat Takaful Indonesia
Many economists predict the year 2009 as a challenging year for the corporate world. On the extreme note, it is predicted that the crisis which started in the second quarter of 2008 would prolonged to 2010. Some even speculated that it would eventually head towards stagflation, an economic crisis marked by the persistent inflation combined with stagnant consumer demand and relatively high unemployment.
As the United States still holds the bull by its horn in regards to business and economy, the economic recession which began there swiftly spread out to other developed and developing countries, fast becoming world economic catastrophe. Stock markets, such as Dow Jones, Nasdaq, FTSE, Hangseng and Nikei continued the downfall trend in first quarter of 2009. However, the index prices have shown some optimistic increase recently but economic uncertainty still looms. Prices of commodities are continuously corrected to the low level. Indeed, this economic crisis is the worst ever, since the Great Depression in the United States in 1930.
Big nations experiencing the impact of this financial tsunami are struggling hard to figure out ways to revive the economy. Indonesia as a developing country is definitely no exception. Many companies, regardless of their sizes have been plagued by unemployment and some even have to close down temporarily.
Despite the gloomy atmosphere, insurance players in Indonesia still have reasons to remain optimistic. As there are silver linings in every dark cloud, this crisis breathes fresh opportunities to the insurance industry as well. In 2009, Indonesia’s insurance industry is projected to grow by 5%, in line with the national economic growth which is expected to increase by 5,2% from the previous year. This positive outlook is not only based on the consumer’s continued demand for insurance protection, but also on the immense local market potentials in the insurance/takaful industry which until recently has only reached 11% market penetration rate.
Although it is predicted that 2009 would see a slow-down in the insurance sector and despite declining premium collection at the beginning of 2009 (5%-6%), the industry is anticipating an appreciation in demand for insurance protection with the forthcoming 2009 general election. This is because.the public would most likely seek insurance protection to insure their properties against possible damages that might arise due to any untoward incidents caused by the election process.
On another positive outlook, the Government’s recent regulation, (PP) No. 81 year 2008, also brings an added advantage to the more than 40 general insurance companies in Indonesia with capital below Rp 40 billion. The regulation granted postponement to 2010 and 2014 for conventional insurance companies to fulfill the minimum capital requirement of Rp 40 billion and Rp 100 billion, respectively. This definitely brings great relief to the insurance players as they are allowed more time to increase their capital in stages during the four years stipulated time period. Nevertheless, the minimum capital requirement for insurance companies based on shariah principles or takaful is maintained at Rp 50 billion.
Since 2008, the takaful industry continues to grow despite slowing macroeconomic condition. By end of 2008, there were 51 insurance related institutions operating on shariah principles in Indonesia. Three were full-fledged Shariah insurers, 39 window-based, three retakaful and six takaful and retakaful Shariah brokers. For the year 2008, Takaful Indonesia Group, the biggest takaful group in Indonesia, recorded a remarkable growth with significant improvement on the performance of its two subsidiaries, PT Asuransi Takaful Keluarga (ATK) which manages family takaful and PT Asuransi Takaful Umum (ATU) which manages the general side. Gross contribution of Takaful Indonesia in 2008 rose to 42%, reaching almost Rp 500 billion from Rp 352 billion as compared to the previous year. This improvement is contributed by ATK’s gross collection of Rp 324 billion (65%) and ATU’s Rp 176 billion (35%). The net income of these two Takaful Indonesia’s subsidiaries also improved significantly. For 2008, ATU recorded Rp 7.79 billion in net income, an impressive increment of about 80% as compared to Rp 4.32 billion in 2007. In addition, ATK also registered a gain of Rp 14.06 billion; rising 58% from Rp 8.90 billion recorded the year before. This marked an impressive achievement far exceeding the average growth of the Indonesian insurance industry which at the most only grows 25% yearly.
For the insurance industry in Indonesia, unit link product is obviously the most favorable and much sought-after product in the market. Takaful Indonesia’s subsidiary, ATK also recorded an increase in sales for its own unit link product, amounting to Rp 44.51 billion for the first and second quarter of 2008. Unfortunately, the world‘s unfriendly investment climate did hinder sales of unit link products as the final quarter of last year marked a decreasing demand for unit link products. This downward trend continued to the first quarter of 2009, reflecting the impact of the global financial turmoil. However, the second quarter of 2009 showed a promising time ahead as.the demand for unit-link products has started to rise up again due to renewed customers’ interest.
Amidst the impending global economic crisis Takaful Indonesia is definitely set to continue focusing on the upward business growth. Having wealth of experiences and having achieved outstanding growth in 2008, Takaful Indonesia implements formulated strategies such as repackaging of attractive products and focusing on products which are not too susceptible to the economic changes. ATK’s family takaful’s product like health insurance (Fulmedicare) and education insurance (Fulnadi); and ATU’s general takaful’s product like motor vehicle and fire insurance are widely promoted during trying times like the present. The emergence of new shariah banks in Indonesia has also given new opportunities for bankatakaful business.
Although facing economic crisis, the low market penetration in the shariah insurance industry in Indonesia creates an attractive opportunity for the insurance players to continue to grow and prosper. As market expansion is one of the most effective ways to keep business flowing, Takaful Indonesia tries to reach wider market segment by extending its marketing chain to strengthen it’s 38 branches all over Indonesia. Takaful Indonesia takes continuous effort to reach more customers nationwide by creating effective marketing channels via its cooperation with corporations. In addition to that, synergistic effort is also taken to develop staff professionalism and competencies through consistent training and development. This is necessary as staff professionalism is crucial to deal with the more extended and sophisticated customers’ base. Besides, the emphasis on spiritual aspect is never neglected as it is one of the most important differentiation factors between takaful and conventional players.
Needless to say the low market penetration for shariah insurance in Indonesia is also attributable to several other factors. The majority of the population is still in the low-income bracket. On top of that, society’s awareness on the importance of insurance is still rather low. Efforts is still needed to be directed towards educating the public on both the conventional and shariah insurance, for the market to appreciate the protection aspects that insurance can offer.
In tandem with this spirit, Takaful Indonesia has capitalized on it’s wealth of experiences, having been the pioneer in takaful business in Indonesia and having lead the industry for more than 14 years from its inception. As an appreciation to the public for their continued support, Takaful Indonesia has taken the initiative to produce a premier book on takaful entitled, “Solusi Berasuransi Lebih Indah Dengan Syariah” (Insurance Solution Make Better with Shariah). This book is specially written to cater for the general public at large to promote better understanding on the basic knowledge about takaful business. The demand for such book is obviously huge in view of scarcity of material on such topic in the market.
To optimize the benefits that shariah insurance can offer the public at large, the insurance players, investors, regulators and the society in general should work hand in hand for a mutually beneficial cooperation. Commitments from all stakeholders will undoubtedly help to boost the takaful industry in Indonesia to a higher level and will help to close the gap between the syariah and conventional insurers.
New Book on Takaful "SOLUSI BERASURANSI - Lebih Indah Dengan Syariah'
In tandem with the spirit of sharing knowledge, Takaful Indonesia has capitalized on it’s wealth of experiences, having been the pioneer in takaful business in Indonesia and having lead the industry for more than 14 years from its inception. As an appreciation to the public for their continued support, Takaful Indonesia has taken the initiative to produce a premier book on takaful entitled, “Solusi Berasuransi Lebih Indah Dengan Syariah” (Insurance Solution Make Better with Shariah). This book is specially written to cater for the general public at large to promote better understanding on the basic knowledge about takaful business. The demand for such book is obviously huge in view of scarcity of material on such topic in the market.
Make sure you obtain a copy today for your personal collection on takaful books.
Thursday, April 16, 2009
What is Takaful?
During my visit to Bandung recently, I was asked with a basic (for some) question on what actually takaful is all about. Let me share some points to those who is interested to know about it.
Takaful has been described by Takaful Act 1984 in Malaysia as a scheme which is based on mutual cooperation, solidarity and helping each other in financial aids in the event of mishap. The root of takaful is 'kafala' in Arabic which means guaranteeing, maintaining and preserving. This lead to the meaning of takaful as simply joint guaranteeing each other. It is a contract of agreement for mutual cooperation among the group who agree to jointly guarantee among themselves against loss or damage that may befall any of them. The main objective of the 'pact' for takaful is to pay for a defined loss from a defined fund.
Takaful has been described by Takaful Act 1984 in Malaysia as a scheme which is based on mutual cooperation, solidarity and helping each other in financial aids in the event of mishap. The root of takaful is 'kafala' in Arabic which means guaranteeing, maintaining and preserving. This lead to the meaning of takaful as simply joint guaranteeing each other. It is a contract of agreement for mutual cooperation among the group who agree to jointly guarantee among themselves against loss or damage that may befall any of them. The main objective of the 'pact' for takaful is to pay for a defined loss from a defined fund.
Tuesday, April 14, 2009
Risk Based Capital
Risk Based Capital, which measures the financial security or solvency level of insurance companies in Indonesia, was introduced in 1999 and all insurance companies (including takaful) must maintain an RBC ratio of not less than 120% (current).
RBC ratio = (Solvency Margin ÷ Minimum Solvency margin) ≥ 120%
Where,
1. Solvency Margin = Admitted Assets – Liabilities; and
2. Minimum Solvency Margin is the summation of the following risks:
a. Asset default risk
b. Cashflow mismatch risk
c. Currency mismatch risk
d. Claims experience worst than expected risk
e. Insufficient premium risk
f. Reinsurance risk
3. The calculation of the above risk is clearly defined in MOF’s regulation no. 3607/LK/2004 which was recently revised under regulation no. PER-02/BL/2008.
4. Admitted assets are calculated based on the accounting standard as prescribed by MOF under the same regulation.
5. The current financial turmoil had resulted in several companies experiencing negative RBC or below the minimum required ratio, ie. 120%.
6. As a result, those companies are undertaking several measures including capital restructuring and corporate restructuring in order to rectify the situation.
7. IMOF had, early of the 2009, reviewed the RBC guidelines which allow some flexibilities in determining the risk factors.
Monday, April 13, 2009
Merger & acquisition
A friend of mine came to meet me in Jakarta recently after quite sometime haven't meet with each other. Out of curiosity, I enquired the main reason for him to be in Jakarta especially during this financial turmoil. Surprisingly, the response was to evaluate on the possibility of acquiring any insurance companies (life and general) in Indonesia and ultimately to convert into takaful operators. Well, this could be a good opportunity considering the financial crisis which affecting almost everybody in the financial sectors. The price maybe attractive should the companies' NTA drop due to unrealise losses of marketable securities.
However, one interesting issue yet to be resolved was with regard to direct or indirect acquisition of the insurance companies. Direct obviously means an equity in the company whilst indirect is via another non-insurance company. As for direct acquistion, the new foreign shareholder must be an insurance related company or a holding of any insurance company. Besides, the interested party must obtain an A rating from any international rating agency. This is tough for those who had never gone thru such exercise. Moreover, the total foreign holding shall not exceed 80% of the total paid up of the insurance company.
Should indirect holding is a choice there are few critical issues need to be addressed. The target company must fall under the auspices of IMOF otherwise there will be some difficulties in the status of the target insurance company. With indirect holding, the new foreign shareholders may loose their right to place their representatives in the insurance company due to non-JV company status which is known as local company or 'swasta nasional'. Pls refer to PP77 1992 article 4 (1) and (2) which was revised recently, for further details.
However, one interesting issue yet to be resolved was with regard to direct or indirect acquisition of the insurance companies. Direct obviously means an equity in the company whilst indirect is via another non-insurance company. As for direct acquistion, the new foreign shareholder must be an insurance related company or a holding of any insurance company. Besides, the interested party must obtain an A rating from any international rating agency. This is tough for those who had never gone thru such exercise. Moreover, the total foreign holding shall not exceed 80% of the total paid up of the insurance company.
Should indirect holding is a choice there are few critical issues need to be addressed. The target company must fall under the auspices of IMOF otherwise there will be some difficulties in the status of the target insurance company. With indirect holding, the new foreign shareholders may loose their right to place their representatives in the insurance company due to non-JV company status which is known as local company or 'swasta nasional'. Pls refer to PP77 1992 article 4 (1) and (2) which was revised recently, for further details.
Monday, January 19, 2009
Price War?
I always being asked by marketers with regard to pricing of takaful products whether family or general. In other words, should we be part of price war competition with others? I disagree to use pricing as sole marketing strategy. Takaful is a service industry thus price is only one of the factor for consideration. Marketers should evaluate all relevant factors prudently prior to any conclusion:
1. Pricing, of course;
2. Coverage;
3. Exclusion;
4. Underwriting flexibility; and
5. Claims TAT.
For instance, those 'cheaper' policy may contain more exclusions. More exclusions means lesser coverage and vice versa.
Underwriting can be tedious for some companies where numerous requirements need to be adhered. This may lead to lesser standard policies and more loadings imposed.
As for claims, policyholders must ensure that the company adhere to prompt and justice in claims processing. As marketer, you should conduct simple investigation on the claims TAT of competitors.
Conclusion: Cheaper should not necessary be the choice for customers.
1. Pricing, of course;
2. Coverage;
3. Exclusion;
4. Underwriting flexibility; and
5. Claims TAT.
For instance, those 'cheaper' policy may contain more exclusions. More exclusions means lesser coverage and vice versa.
Underwriting can be tedious for some companies where numerous requirements need to be adhered. This may lead to lesser standard policies and more loadings imposed.
As for claims, policyholders must ensure that the company adhere to prompt and justice in claims processing. As marketer, you should conduct simple investigation on the claims TAT of competitors.
Conclusion: Cheaper should not necessary be the choice for customers.
Sunday, January 18, 2009
Agents recruitment
I just returned from regional visits to Padang and Semarang. One of interesting question posted to me was how to intensify agency recruitment. My responses to the leaders were:
1. University graduates - look for final year students and ensure that you participate in the career week program in those higher learning institutions.
2. PHK - many companies are retrenching their employees due to global economic crisis. These prospects may have sustaining power for 1-2 years attributable to their retrenchment benefits. Convince them that agency may be a good career for them as proven by many successful agents.
3. Dissatisfied agents from other companies. You may have to be extra careful to 'pinch' these agents due to regulations and sensitivity within industry.
4. Mega agency recruitment. Work together with other leaders and invite as many prospects as possible. Ideally, the program should at least attended by 1,000 prospects. If 20% sign up to become agents then there is 200 agents to be shared among the leaders.
1. University graduates - look for final year students and ensure that you participate in the career week program in those higher learning institutions.
2. PHK - many companies are retrenching their employees due to global economic crisis. These prospects may have sustaining power for 1-2 years attributable to their retrenchment benefits. Convince them that agency may be a good career for them as proven by many successful agents.
3. Dissatisfied agents from other companies. You may have to be extra careful to 'pinch' these agents due to regulations and sensitivity within industry.
4. Mega agency recruitment. Work together with other leaders and invite as many prospects as possible. Ideally, the program should at least attended by 1,000 prospects. If 20% sign up to become agents then there is 200 agents to be shared among the leaders.
How to make agents productive
Many insurers/takafuls participate in many exhibitions or expo to promote their products and companies. In doing so, they like to invite their agents to assist in managing the booth and promote sales, etc. I did not agree to allow the agents to participate without any fees or charges. Instead the company should charge them with reasonable fees where the fees will be refunded should they meet certain criteria such as achieve sales target, collected minimum number of prospects or recruit minimum no. of agents.
Similarly, for all trainings conducted by the company, the agents must pay certain minimum charges mainly to cater for the actual cost incurred such as f&b, accomodations, etc. The charges will again refunded upon them successfully making sales subsequently.
This method should be an incentive for the agents to intensify their efforts in getting sales, recruitment or prospectings. We should eliminate those who are not serious in agency business. No more free lunch for agents and we mean business in every facilities provided. Teach them to fish instead of feeding them with fish.
Similarly, for all trainings conducted by the company, the agents must pay certain minimum charges mainly to cater for the actual cost incurred such as f&b, accomodations, etc. The charges will again refunded upon them successfully making sales subsequently.
This method should be an incentive for the agents to intensify their efforts in getting sales, recruitment or prospectings. We should eliminate those who are not serious in agency business. No more free lunch for agents and we mean business in every facilities provided. Teach them to fish instead of feeding them with fish.
Family takaful agency
After 14 years in takaful industry, PT Asuransi Takaful Keluarga had decided to review their agency structure and compensation comprehensively. I had voiced my concern on the effectiveness of the agency about 1 1/2 year ago and alhamdulillah the concern had been translated into reality.
Life or family agency may comprise of 2 - 6 tiers depending on the strategy. However, my personal opinion is that the ideal is 3 tiers as proven successfully in many countries including Malaysia. Whatever it is, the management should understand the philosophy behind the tiers.
3 tiers meaning 2 leaders; 4 tiers meaning 3 leaders; etc. As long as the management understand the philosophy perfectly, there is no issue with regard to the number of tiers. To appoint someone as agency leader, he/she should be prepared to exhibit certain minimum criteria as a leader or supervising roles. He/she must be able to conduct relevant trainings for subordinate including products, selling skill, etc. Skill of basic management is also required to ensure that the team under him is effectively manage for optimum result.
As a result, the leaders are then entitle for the allocated overriding commissions upon sales made by his agents. The agents will not feel any dissatisfaction should the leader play his role accordingly.
The management should then focus on developing the leaders who will then develop their downlines. This concept is adopted in MLM or multi-level marketing organisations throughout the world.
Life or family agency may comprise of 2 - 6 tiers depending on the strategy. However, my personal opinion is that the ideal is 3 tiers as proven successfully in many countries including Malaysia. Whatever it is, the management should understand the philosophy behind the tiers.
3 tiers meaning 2 leaders; 4 tiers meaning 3 leaders; etc. As long as the management understand the philosophy perfectly, there is no issue with regard to the number of tiers. To appoint someone as agency leader, he/she should be prepared to exhibit certain minimum criteria as a leader or supervising roles. He/she must be able to conduct relevant trainings for subordinate including products, selling skill, etc. Skill of basic management is also required to ensure that the team under him is effectively manage for optimum result.
As a result, the leaders are then entitle for the allocated overriding commissions upon sales made by his agents. The agents will not feel any dissatisfaction should the leader play his role accordingly.
The management should then focus on developing the leaders who will then develop their downlines. This concept is adopted in MLM or multi-level marketing organisations throughout the world.
Indonesia: The Future Takaful Hub
Come 24th August 2009, PT Syarikat Takaful Takaful Indonesia (Takaful Indonesia), Indonesia’s pioneer shariah insurance group, will celebrate its 15th anniversary. When it was first established, the still largely conventional economic system has only one shariah insurance provider since Indonesia introduced its first financial institution, Bank Muamalat in 1991. Understandably, Takaful Indonesia establishment has created quite a stir, making a considerable impact in the insurance industry and marking the beginning of a robust and evolving market for shariah-compliance insurance provider. Today, Takaful Indonesia owns two shariah insurances, namely PT Asuransi Takaful Keluarga (ATK) which provides family Takaful and PT Asuransi Takaful Umum (ATU) which provides general Takaful. With 39 branches all over Indonesia, Takaful Indonesia has approximately 1.5 million policyholders comprising of retail and corporates. Although a respectful number, this only comprises lower than 1 percent of the population, leaving the pie still big enough for further expansion and healthy competition. Investors looking for new places to spread their wings have only to look at all the obvious cues to realise how big an untapped market Indonesia is, especially for the shariah insurance, or more aptly known as Takaful.
Reputed as the world’s fourth most populous country, Indonesia is certainly an attractive market for business ventures as business opportunities are aplenty. With 17,508 islands, it is indisputably the world’s largest archipelago, and home to approximately 230 million population, spread out from as far as Sabang in North Sumatra to Merauke in Irian Jaya. The land is rich with natural resources, with much of it remain unexploited, but more importantly, it supplies not only abundance of human capital but also provides ready market for business growth. In the present day inclination towards shariah insurance, investors cannot miss one interesting fact: almost 85% of the total population is Moslem, and that traslates to about 200 million potential customers. Based on unsubstantiated sources, it is interesting to note the fact that Indonesia has more than 3,500 high networth citizens holding over USD100 million each. While almost 70 percent of this priviledged group lives in Jakarta, the market is still very attractive in term of customers’ spending potentials. The Indonesian Gross Domestic Product was approximately USD432.9 billion based on official exchange rates in 2007. The year 2008 also promises further boost to the economy, although the 6.5 percent current economic rate may fall further due to reduced exports attributable to the global financial crisis. The Government is confident to sustain the economic growth beyond 6% in 2008 and 2009 where steps are being taken to stimulate the economic expansion using the national budget, which already reached USD100 billion in 2008.
By end of 2007, the insurance industry in Indonesia has been faring well where the industry boasts total assets worth USD20.8 billion and penetration rate of 7.2%, with an average annual growth rate in assets and net contributions of 27% and 19%, respectively. In 2007, the gross premium income of insurance industry increased by 46% from USD4.3 billion the previous year to reach USD6.3 billion. The same year also saw an improvement in the economy as the Gross Domestic Product (GDP) increased significantly. In sum, the ratio of gross premium to GDP increased from 1.57% to 1.88%.
Amidst the still largely conventional economic system, the shariah economic practices has started to evolve and gain popularity significantly within the last 5 years. However, as compared to the growth of shariah entities in Indonesia, the development of shariah insurances has been rather slow, with only five shariah insurance companies by the year 2002, including ATK and ATU. The data from Bapepam LK shows that the asset of shariah insurance in 2007 was only approximately USD202 million, or about 1.6% of the total insurance asset in Indonesia. Meanwhile, the total premium collection that year was recorded at about USD115 million, a far cry from the total national insurance collection at USD7.4 billion (inclusive social security schemes). As development of shariah insurances has been lagging far behind the conventional insurances, a gap in the market place presents itself, creating opportunities waiting to be explored.
Although new players started to flood the market, demand for shariah-compliance product is still uprising, and the market is still large enough to accommodate new players. By July 2008, there were 149 insurance companies operating in Indonesia with 46 in life, 103 in general and the balance in reinsurance. Takaful Indonesia, being the pioneer, still lead the market for family takaful as ATK is among the two full-fledged and 13 windows whilst ATU is the sole full-fledged general takaful among 19 other operators. However, compared to other countries with substantial Moslem population, the growth of shariah insurance in Indonesia is rather slower. Malaysia for instance, has only 10 % of Indonesian population, yet the total asset of its Shariah insurance has reached approximately USD2.0 billion or about 6.0 percent of total assets of the insurances and takaful industry. In terms of premium collections, Malaysia’s takaful industry has reached about USD500 million or 6.0% of total premium collection recorded for the insurance and takaful industry for year 2006. In a nutshell, there are more to be developed to further stimulate the takaful market in Indonesia and ample rewards await those who make the right moves and efforts.
As acceptance of the Indonesian society towards insurance is still low in general, efforts should be taken to educate them about the necessity of having an insurance coverage and to familiarize them with the shariah concept of insurance. In most countries, the progress of shariah insurance and the growing demand for shariah-based products are driven by the society’s awareness towards the importance of insurance and the availability of choiced products. Familiarisation through product awareness will help create needs as people realize what they are lacking and learn how to fulfill the gap. Most of the victims of tsunami and earthquake in Aceh, Nias, Yogjakarta, Bengkulu and even those affected by major flood in Jakarta past few years, had neither family nor general insurance coverage, according to a study conducted by local insurance industry. Therefore, the shariah insurance companies, together with the government and Moslem scholars, should shoulder the responsibility to create awareness campaign among the population and to spread the information about the benefits of Shariah insurance through selected mass media nationwide.
To compete with the already dominant conventional insurance player, investors should be more inovative and creative. Shariah insurance needs to offer shariah products with dualistic role, 1) as an investment instrument and 2) as a protection instrument. For instance, with the approval and issuance of sukuk by the Government of Indonesia, the shariah insurance market can further boost sales by offering better investment related cum protection products or structured products, as it will provide better investment instrument in accordance with shariah principles. Thus, more takaful products can be competitively developed and offered to customers.
To be more creative and innovative in product developments, shariah insurance players must be able to create a strong business foundation, started with the ‘team’. The ‘team’ comprises of each and everyone working in the company, for even a small contribution srengthen the overall strength of the company. Shariah insurers need to develop and nurture the professional competency amongst its personnel, and equip them with the right knowledge and skills in both the conventional and shariah system. This is crucial as in the competetive market place, one must be ready to compete globally in the free trade era to ensure growth and profits. More importantly, a company with solid foundation can foster long term relationship with customers and customers’ loyalty means properity for business growth.
To foster growth, it is important that a company widen its market reach for as far as possible. In this respect, offering shariah-compliance products does not mean only zooming to the Moslem market as the sole target market. The universality of Islam and the Shariah concepts make non-Moslem a promising and potential market as well. Realistically, Shariah insurance accommodates risk management and sharing of risk among participants, regardless of their race or religion. For as long as the other party is engaged in non-haram activities, there is no restriction for Shariah insurers to extent their services. This is supported by the fact that in general, the demand for insurance products are higher among the non-Moslem society compared to Moslem mainly due to their higher standard of living.
Last but not least, the shariah insurance needs full support from the government to provide policies that are more flexible on investment and taxation that can accomodate and meet the needs of the industry. Hopefully, all aspects of shariah business can be developed simultaneously in the near future. Being under one roof, all shariah financial institutions are inter-dependent of one another. The shariah insurance can not develop significantly without the support of the shariah banking for instance, and vice-versa. As the real practices in Takaful Indonesia, the efforts to develop shariah-compliance products do not only focus on repackaging of common insurance products in the market but also on innovating specified shariah products. The Company draws strength from its product differentiation, as it is committed in offering value added products in accordance to shariah principles, a feature that distinguishes Takaful Indonesia from the conventional insurance. Presently, we have attractive products such as bancassurance and micro insurance which meet with the strong demand in the market. Our unit-linked products had also experienced tremendous business growth in 2008 compared to previous year. During 2007, Takaful Indonesia has been awarded the best performance Shariah insurance by some independent institutions in Indonesia. This is a recognition that the whole team of Takaful Indonesia is proud of, for it reflects our commitment and team effort in offering only the best shariah-compliance products for the people of Indonesia. As a pioneer and market leader, it welcomes healthy competition as it believes it is still a big market out there and that it is crucial to educate people about the shariah insurance as a preferred insurance.
Reputed as the world’s fourth most populous country, Indonesia is certainly an attractive market for business ventures as business opportunities are aplenty. With 17,508 islands, it is indisputably the world’s largest archipelago, and home to approximately 230 million population, spread out from as far as Sabang in North Sumatra to Merauke in Irian Jaya. The land is rich with natural resources, with much of it remain unexploited, but more importantly, it supplies not only abundance of human capital but also provides ready market for business growth. In the present day inclination towards shariah insurance, investors cannot miss one interesting fact: almost 85% of the total population is Moslem, and that traslates to about 200 million potential customers. Based on unsubstantiated sources, it is interesting to note the fact that Indonesia has more than 3,500 high networth citizens holding over USD100 million each. While almost 70 percent of this priviledged group lives in Jakarta, the market is still very attractive in term of customers’ spending potentials. The Indonesian Gross Domestic Product was approximately USD432.9 billion based on official exchange rates in 2007. The year 2008 also promises further boost to the economy, although the 6.5 percent current economic rate may fall further due to reduced exports attributable to the global financial crisis. The Government is confident to sustain the economic growth beyond 6% in 2008 and 2009 where steps are being taken to stimulate the economic expansion using the national budget, which already reached USD100 billion in 2008.
By end of 2007, the insurance industry in Indonesia has been faring well where the industry boasts total assets worth USD20.8 billion and penetration rate of 7.2%, with an average annual growth rate in assets and net contributions of 27% and 19%, respectively. In 2007, the gross premium income of insurance industry increased by 46% from USD4.3 billion the previous year to reach USD6.3 billion. The same year also saw an improvement in the economy as the Gross Domestic Product (GDP) increased significantly. In sum, the ratio of gross premium to GDP increased from 1.57% to 1.88%.
Amidst the still largely conventional economic system, the shariah economic practices has started to evolve and gain popularity significantly within the last 5 years. However, as compared to the growth of shariah entities in Indonesia, the development of shariah insurances has been rather slow, with only five shariah insurance companies by the year 2002, including ATK and ATU. The data from Bapepam LK shows that the asset of shariah insurance in 2007 was only approximately USD202 million, or about 1.6% of the total insurance asset in Indonesia. Meanwhile, the total premium collection that year was recorded at about USD115 million, a far cry from the total national insurance collection at USD7.4 billion (inclusive social security schemes). As development of shariah insurances has been lagging far behind the conventional insurances, a gap in the market place presents itself, creating opportunities waiting to be explored.
Although new players started to flood the market, demand for shariah-compliance product is still uprising, and the market is still large enough to accommodate new players. By July 2008, there were 149 insurance companies operating in Indonesia with 46 in life, 103 in general and the balance in reinsurance. Takaful Indonesia, being the pioneer, still lead the market for family takaful as ATK is among the two full-fledged and 13 windows whilst ATU is the sole full-fledged general takaful among 19 other operators. However, compared to other countries with substantial Moslem population, the growth of shariah insurance in Indonesia is rather slower. Malaysia for instance, has only 10 % of Indonesian population, yet the total asset of its Shariah insurance has reached approximately USD2.0 billion or about 6.0 percent of total assets of the insurances and takaful industry. In terms of premium collections, Malaysia’s takaful industry has reached about USD500 million or 6.0% of total premium collection recorded for the insurance and takaful industry for year 2006. In a nutshell, there are more to be developed to further stimulate the takaful market in Indonesia and ample rewards await those who make the right moves and efforts.
As acceptance of the Indonesian society towards insurance is still low in general, efforts should be taken to educate them about the necessity of having an insurance coverage and to familiarize them with the shariah concept of insurance. In most countries, the progress of shariah insurance and the growing demand for shariah-based products are driven by the society’s awareness towards the importance of insurance and the availability of choiced products. Familiarisation through product awareness will help create needs as people realize what they are lacking and learn how to fulfill the gap. Most of the victims of tsunami and earthquake in Aceh, Nias, Yogjakarta, Bengkulu and even those affected by major flood in Jakarta past few years, had neither family nor general insurance coverage, according to a study conducted by local insurance industry. Therefore, the shariah insurance companies, together with the government and Moslem scholars, should shoulder the responsibility to create awareness campaign among the population and to spread the information about the benefits of Shariah insurance through selected mass media nationwide.
To compete with the already dominant conventional insurance player, investors should be more inovative and creative. Shariah insurance needs to offer shariah products with dualistic role, 1) as an investment instrument and 2) as a protection instrument. For instance, with the approval and issuance of sukuk by the Government of Indonesia, the shariah insurance market can further boost sales by offering better investment related cum protection products or structured products, as it will provide better investment instrument in accordance with shariah principles. Thus, more takaful products can be competitively developed and offered to customers.
To be more creative and innovative in product developments, shariah insurance players must be able to create a strong business foundation, started with the ‘team’. The ‘team’ comprises of each and everyone working in the company, for even a small contribution srengthen the overall strength of the company. Shariah insurers need to develop and nurture the professional competency amongst its personnel, and equip them with the right knowledge and skills in both the conventional and shariah system. This is crucial as in the competetive market place, one must be ready to compete globally in the free trade era to ensure growth and profits. More importantly, a company with solid foundation can foster long term relationship with customers and customers’ loyalty means properity for business growth.
To foster growth, it is important that a company widen its market reach for as far as possible. In this respect, offering shariah-compliance products does not mean only zooming to the Moslem market as the sole target market. The universality of Islam and the Shariah concepts make non-Moslem a promising and potential market as well. Realistically, Shariah insurance accommodates risk management and sharing of risk among participants, regardless of their race or religion. For as long as the other party is engaged in non-haram activities, there is no restriction for Shariah insurers to extent their services. This is supported by the fact that in general, the demand for insurance products are higher among the non-Moslem society compared to Moslem mainly due to their higher standard of living.
Last but not least, the shariah insurance needs full support from the government to provide policies that are more flexible on investment and taxation that can accomodate and meet the needs of the industry. Hopefully, all aspects of shariah business can be developed simultaneously in the near future. Being under one roof, all shariah financial institutions are inter-dependent of one another. The shariah insurance can not develop significantly without the support of the shariah banking for instance, and vice-versa. As the real practices in Takaful Indonesia, the efforts to develop shariah-compliance products do not only focus on repackaging of common insurance products in the market but also on innovating specified shariah products. The Company draws strength from its product differentiation, as it is committed in offering value added products in accordance to shariah principles, a feature that distinguishes Takaful Indonesia from the conventional insurance. Presently, we have attractive products such as bancassurance and micro insurance which meet with the strong demand in the market. Our unit-linked products had also experienced tremendous business growth in 2008 compared to previous year. During 2007, Takaful Indonesia has been awarded the best performance Shariah insurance by some independent institutions in Indonesia. This is a recognition that the whole team of Takaful Indonesia is proud of, for it reflects our commitment and team effort in offering only the best shariah-compliance products for the people of Indonesia. As a pioneer and market leader, it welcomes healthy competition as it believes it is still a big market out there and that it is crucial to educate people about the shariah insurance as a preferred insurance.
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