Investment Linked Takaful Seminar

Alhamdulillah, I had successfully conducted a seminar on Investment Linked Takaful on 20-21 October, 2010 in Kuala Lumpur attended by participants from Brunei and Malaysia.  Basically, the seminar covers the following topics:

• Concept and operational system of takaful business
• Development of takaful business in Malaysia
• Takaful business models used in Malaysia and throughout the world
• Insurance & takaful
• Types of investment linked takaful (ILT) products
• Features of ILT
• Fees & charges structures
• Underwriting procedures
• How ILT works?
• Methods of calculating benefits for
• withdrawals
• surrender
• death/TPD
• Key considerations in investment
• Key investment instruments
• Investor risk profile
• Life cycle risk profile
• Asset portfolio life cycle
• Designing a retirement planning calculator
• Total fund available at retirement
• Total fund required at retirement
• Calculating the funding schedule
• Marketing investment linked takaful
• Conducting fact finding
• Assessing and satisfying customer's needs
• Making recommendations to customer.

It was a good session with the participants where different ideas exchanged for mutual benefits.  Furthermore, participants from Brunei are planning to introduce the ILT in their companies respectively which will mark a new era for takaful industry in Brunei.  Materials provided in the seminar obviously will be a good guideline for them to design their ILT products, system, procedures as well as marketing strategies.

Do Things Differently in Takaful

I was recently being approached by a party which will be granted a takaful license in Malaysia recently.  It was a good discussion and exchange of understanding pertaining the takaful matters.  During the discussion, they seek for my opinion on how to design their new subsidiary in order to optimize the opportunity in market penetration.  It is so common people will pose a question like "How you do things differently?" which we used to read in MBA or management's books.
I told them that do things differently may not necessary deliver better results.  Of course, it will generate different results due to different ways of initiatives.  Again, it may not necessary deliver better results!  Good leader will evaluate the existing strengths and weaknesses of the group and capitalize the strength as much as possible to earn results.  For instance, the group already had a good reputation in strong agency force thus that should be the main business strategic objective in the next 5 years.  Besides, the partner in shareholding structure is a strong and well known bank which always being awarded with several prestigious awards from the industry.  Thus, I told them to focus on this two main distribution channels namely agency as well as bankatakaful.  Agency will easily take 3-4 years to show significant result therefore bankatakaful shall be the top agenda in the next 3-5 years.  Don't have to crack their heads to find different ways to doing things!  The solution is right on the table and ready to be executed.
However, I warned them to be extra cautious when optimizing the existing conventional agency force as it may rock the boat in the conventional business.  The takaful leader shall executive with caution all the initiatives required.  Clear target market shall be explained in order to avoid crossing the border.  Takaful should not at the moment to consider the non-Moslem market as their main target market.  Don't be too greedy as there are huge untapped Moslem market waiting ahead.  The non-Moslem shall only be a complimentary and accommodation business to the main.  Currently, the takaful market penetration in Malaysia is approximately 10% which mainly are Moslem.  Thus there are still large number of Moslem who are yet to be insured in takaful business.
Bankatakaful is interesting if all the parties execute correctly.  There are two types of bankatakaful which are product bundling and stand alone product.  Product bundling is like MRTT, fire and motor takaful policies which are bundled with financing products of the bank.  This type of products do not need high investment and efforts.  The second type i.e. stand alone takaful product which is specifically designed to suit with the need of the bank's customers.  Examples are like retirement, higher education plan, PA, health, etc.  These can be part and parcel of the range of products promoted via the bank's sales force or financial consultants.
In conclusion, don't be too amazed with the phrase "do things differently" as it may not necessary deliver the expected results as those initiatives may have yet to be tested.

Profit Testing

It has been more than 20 years I learned about Profit Testing in life insurance which I acquired during my college years in University of Iowa and ever since I had almost never apply in during my entire career.  Nevertheless, I had the opportunities in several occasions, seen and being briefed pertaining the outcome of profit testing mainly on development of new life products as well as takaful products.
Now I have an opportunity to digest the entire technical aspects of profit testing as I need to present to a group of students on the same subject matter.  Interesting and challenging enough.....   For the benefit of readers, I summarize as below.

Profit testing basically a cash flow studies on the life insurance product as well as family takaful product on the future cash in and cash out.  Besides, the investment income and inflation shall also be taken into consideration during the process of calculation.  In a nutshell, the profit testing demonstrates the expected scenario in the future till the maturity of the policy pertaining the premium/contribution income, investment income (cash in) against expenses paid, commissions, taxes, reserves, claims benefits including death and living benefits. Therefore, the actuary must ensure that all the factors used in the testing must be prudent or extremely accurate based on extremely good judgement.  The outcome of the testing will lead to a decision whether to proceed selling or promoting the product or not.  Obviously, if the testing indicates a profitable outcome then it is worth to sell/promote otherwise the product shall be redesign accordingly.
However, the actuary shall conduct the testing again say on year to year basis against the actual experience of the company.  For instance, he has to test the impact of actual investment income against the assumption used.  Similarly, he may have to test against the expenses actually paid out which may differ from the assumption.  This is the part where most people failed to exercise i.e. re-testing the products.

Besides testing on individual product basis, actuary shall also conduct profit testing on the life office model or takaful office model.  This is to ensure that the entire portfolio of the company is healthy for the future growth of the company.  Just to share some experience, there are instances where the agents loved to sell/promote health and medical scheme or plans as they are so easy to sell.  Some smart agents even setup a 'permanent' station or booth somewhere within hospital or medical centre compound and start their normal persuading and convincing activities.  In one aspect it is a good move but on the other aspect it may lead to huge number of non-std lives insured.  Obviously, claims will arise as the actual experience of morbidity is far beyond the standard assumption used in the pricing.  Finally, the portfolio is a losing account.  It may be OK to have a losing account or portfolio sometimes as it is just a complimentary to other plans.  Insurance or takaful needs to embark on corporate social responsibilities as well besides profit, profit and profit. Of course, one of the activities for CSR is offering plans highly needed by the consumers.

Takaful Practice - A Guide to Examinations

In May 2010, I was offered by IBFIM to consider being their Vetting Expert/Editor for their forthcoming book on takaful.  Well, in order to ensure that my knowledge and experiences can be shared with the public, I decided to accept the offer.  After about 3 weeks of intense and thorough reading the manuscript written by two authors, alhamdulillah I managed to summarize a total of about 300 comments and suggestions to improve the book.  More or less, the draft was delivered in a good manner where a beginner and perhaps an intermediate practitioners in insurance and takaful can benefit from it.  Generally, it covers the concept of takaful in depth where the syariah perspectives on the conventional insurance was well presented.  Nevertheless, non-Moslem may encounter some difficulties as there are many arabic terminologies introduced as there are no equivalent translation in English.  Perhaps, future takaful book should introduce a complete glossary at the end for ease of reading.

Next, the book presents the different takaful products being marketed today for general and family takaful.  The content is quite comprehensive for the most common takaful products in Malaysia.  We would appreciate for those outside Malaysia to share their feedbacks with respect to the relevant products in their respective countries.  In addition, it also presents the legal issues and operational procedures such as underwriting and claims. 

After completed vetting the book, I realize that most takaful books published todate have more or less common issues such as syariah perspectives, legal, operational and products.  Thus, I am planning to write my own book on takaful but it will cover slightly different perspective and content.  Already started but still far from completion.  Hopefully, I should be able to complete before middle of next year, insyaAllah.

The Waiting is Over - 4 New Takaful Operators join the Industry

After more than a year with numerous rumors and speculations pertaining the new takaful licenses, Bank Negara Malaysia had finally released (1/9/10) the news that the following entities are awarded with new Takaful licenses but only to transact family businesses:
         American International Assurance Berhad (70%) and Alliance Bank Malaysia Berhad (30%);      AMMB Holdings Berhad (70%) and Friends Provident Group plc, UK (30%)                                               ING Management Holdings (Malaysia) Sdn Bhd (60%), Public Bank Berhad (20%) and Public Islamic Bank Berhad  (20%); and The Great Eastern Life Assurance Company Limited (70%) and Koperasi Angkatan Tentera Malaysia Berhad (30%);

Well, most of them are considered major players in the conventional insurance industry in Malaysia thus I would expect that they may kick off faster than those in the past.  AIA had been issued an ITO (International Takaful Operator) license previously thus this new takaful license would compliment well with ITO license for their aggressive market penetration.  ING may have an advantage due to to its partner which is a very strong FI in local market.  Furthermore, ING had also partnered with a local takaful operator in promoting their employees benefit schemes to the Islamic prospects giving them some exposures to the takaful management. GE had a strong agency team in conventional which definitely be their competitive edge like PruBSN Takaful.  AM Group with its subsidiary, AMAssurance, may have advantage from the partnership with oversea partner in terms of expertise and perhaps capital.  We hope to see new innovation in products and services for the benefits of Malaysians in general.
Few advise perhaps from me is that the new takaful operator shall be named with an appropriate name in accordance with the Islamic phrases and if possible try to disassociate from the conventional name.  This is critical in order to be effective in marketing strategies.  Furthermore, key personnel especially CEO must be a Moslem where this will send a positive message to the community or society that the operator is serious about doing takaful or Islamic insurance and not merely for profit.  As the license is only to transact family takaful, the core team must be those with strong family/life technical background with solid marketing experience.  There are few (one or two) leaders in the takaful operators who are general practitioners thus making their life or family business moving a bit slow than expected.
Be careful when employing those from the conventional industry as there are several aspects differ significantly in takaful operations.  Core team must comprise mainly those with solid background in takaful so that they can lead the rest towards the right direction in takaful philosophies.
I wish all those new takaful players "Good Luck and Welcome on Board" and please ensure that the main focus is strictly adhered i.e. to promote Islamic insurance with honesty, fairness and integrity.

National Education Insurance/Takaful Plan?

We are seeing an escalating university/college fees year by year and I can't imagine the cost to be like in the next say 18-20 yrs from now.  Thus, we need to explore the best solution to manage the situation at least to our next generation to come.  It is not uncommon for us to see an established statutory retirement scheme such as Employees Provident Fund (EPF) in Malaysia.  There are private and public retirement/pension fund setup by relevant parties mainly to ensure that the retirees/pensioners are well protected during their post-retirement period.  By having such funds, the management costs are kept as low as possible and return may also be 'optimized' due to the huge available funds for investment activities.

Now, if we apply the same concept to the education plan which is also in dire need it would definitely benefits all relevant parties whether public or government.  The entity to manage the fund can be a joint venture company with govt say holding 50%, private sectors mainly insurance/takaful companies say 30%, and the balance may be offered to key personnel in the company as a way of loyalty incentives.  I foresee that this scheme will definitely be much cheaper than the available education insurance/takaful plan available in the market as we can scrap the 171% commissions structure from the pricing and keep the loadings as low as possible in view of law of large number.  The modus operandi can be more or less similar to EPF and the Parliment may issue a law to impose a statutory requirement for all newborn babies to be enrolled in the scheme. Premiums/contributions may be a combination of parent (working), employer, and perhaps a token from the government as a way to reduce the burden of the parent.  In the event of withdrawal due certain reasons such as the child fail to continue the study, the portions of employer and government will be returned.  Thus, the parent will only receive his own contribution plus any investment profit, if any.
By this program, the government may reduce it's subsidy to the educational institutions in phases and ultimately this National Education Plan (NEP) will be able to sustain by itself.  Perhaps, we may offer a 10% equity to the higher institutions (IPTA/IPTS) to ensure that the program is efficiently manage end to end.  By being a shareholder in the entity, IPTA/IPTS should ensure that the cost of their fees are kept as low as possible in order to avoid 'deficit' in the funding.
A question may arise with respect to those unemployed parent.  This is similar situation under the current retirement/pension schemes.  Well, at least we solve bulk of the problem and the minority will be explored accordingly.

Microinsurance/microtakaful

Recently, I've been approached by a PhD student seeking for my advise with respect to her thesis topic on microinsurance.  She has strong interest to research on the topic however she kind of stuck to proceed further on the topic.  During the discussion, I posed her several questions as follows to gauge her actual understanding on the subject matter:
1.  What is the meaning of microinsurance or microtakaful?
2.  Who is the target market for such program?
3.  Is Malaysia a country seriously needed such program?  compared to say Indonesia, Afrika, etc.
4. Why none of the insurance/takaful company is trying to lead this program?
5.  Etc, etc.

Based on the questions and feedback, I concluded to her that microinsurance in just a concept and not actually an insurance products.  You can choose any of the suitable products to market under such concept or program.  It may be life or general insurance products however common products  are life products.
Target market is obviously lower income group of population.  However, another question arise from here i.e. whether the group is self employed or those employed on full time basis.  Here is the trick and gray area pertaining microinsurance.  Full time workers in Malaysia are required to participate in SOCSO (social insurance scheme) and EPF (employees provident fund) which I personally feel that the protections are rather sufficient for those category of population.  Thus, the target shall be those self-employed with low income category.  A question arise then whether those unemployed shall be considered under microinsurance.  Well, if we add these people then it is the responsibility of the government to provide such insurance or social insurance.  So the conclusion is that the self-employed is the target market for microinsurance.  Another problem may arise here is that we may have difficulties to collect complete information pertaining this self-employed group to study further as no single entity which is maintaining the statistics pertaining the group.
Based on the above, I personally feel that Malaysia may not desperately need such program as SOCSO and EPF already well established and 'maybe' well managed.  Those self employed may also participate voluntarily.
Insurance/takaful companies are not very keen to venture into this program in view of small premiums and profits however potential high claims.  The companies already participate in such programs like al-khairat, special packaged for asnaf zakat (tithe), etc.  Nevertheless, the volume may not be feasible for reasonable profits or return.
Countries like Indonesia may be a good place to promote such microinsurance since we can easily find millions of underprivileged citizens all over the country especially major cities like Jakarta, Bandung, etc.  More or less about 40-50 million citizens are categorized as hardcore or very poor in Indonesia.  Malaysia can be considered a much better country in terms of prosperity or wealth distribution among the citizens.
Thus, I recommendation is to switch to other practical and interesting topics to be researched.

Seminar: Family Takaful Products & Processes

On 7-8 July, 2010, I had conducted a seminar/workshop entitled "Family Takaful Products & Processes" at IBFIM training centre in Kuala Lumpur, Malaysia.  The seminar was attended by 23 participants comprising of those from Indonesia, Brunei and of course Malaysia.  Participants are from takaful, insurance, banking, training and regulatory sectors who are interested to enrich their knowledge in the field of family takaful.  It was a good seminar to me as well as the participants as we were able to share the latest development in the respective field and country.  For instance, regulator in Indonesia had recently revised the benefits or sum covered for investment linked type of products which make it much higher than the normally practice in most countries including Malaysia.  Commonly, the sum covered is equal to 125% of single premium or fund value, whichever is higher.  However, the revised benefits in Indonesia is equal to 125% of single premium (or contribution in takaful) PLUS the fund value.  This is new to the industry and the Actuary should review their actuarial certificate accordingly.  We are interested to know the rationale for such revision by the regulator.  As for Brunei, not much development except 2 of the takaful operators are in the process (or perhaps had completed) of merging.  Obviously, the process of completion till normal operation will take quite sometime taking into consideration of many factors including strategic planning, marketing strategies, human capital differences, assets and liabilities structures, etc.  Some merging exercises require an external party which is independent and professional to oversee the merging and be the mediator in areas which are conflict between the entities.  This is similar to a bankassurance or bankatakaful critical success factor where the bank and insurance or takaful shall appoint a third party to advise on the processes and strategies in order to avoid conflicts.  As for Malaysia, the 2 new takaful licences had yet to be issued by Bank Negara Malaysia despite of few postponements.  There must be really good reasons why BNM had yet to decide the successful contenders.  I know few big corporations locally and internationally had applied for the license.  Let's wait and see the result.

Overall, the seminar was very successful where I had shared with the participants on several actual case studies for their analysis.  They were good case studies to learn on decision making processes and can't be found in any textbooks anywhere.  Last but not least, thank you to IBFIM for the confidence on me to conduct the seminar.  Thank you also to all the participants for your active participation and interest.

Basic Takaful for Agent

Recently, I was appointed by Islamic Banking and Financial Institution of Malaysia (IBFIM) to review their book entitled, Asas Takaful (Basic Takaful), the official textbook for Basic Takaful Examination (BTE).  In Malaysia, all potential takaful agents must pass BTE prior to the appointment with takaful company.  Prior to my review, I asked myself the standard which I wish to set for the book.  After considering 25 years of takaful industry in Malaysia, I believe that the standard should be upgraded to the next level.  The industry is no longer in the infancy stage therefore all relevant parties must exhibit certain competencies to ensure that the deliverables are at least at par with average standard compared to the conventional insurance industry.  Simple computations on contribution using sample of rating tables are amongst the new content.  The agents must also be well versed with different kind of takaful models applicable in industry as the clients today are more sophisticated.  They should also enhance their knowledge to several takaful products as options.  In this aspect, the probability of closing a deal with client is much higher.

Insurance vs Takaful

Below is a presentation I made recently at the University of Notthingham pertaining insurance vs takaful: