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.
Thursday, April 16, 2009
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.
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