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:

 

 

 

 

 

 

 

 

Why we need takaful/insurance in the first place?

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!!!

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.

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.

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.