Inspiring Malaysian

PETALING JAYA: When the elderly or abandoned die, and nobody comes forward to claim their bodies, Kathiravan Vadivelu makes it his responsibility to give them their final rites.

“Everyone deserves to be sent off in dignity,” said the 42-year-old undertaker from Sungai Petani, Kedah, who has been doing the service for more than 10 years. His family has become accustomed to receiving phone calls in the wee hours of the morning from hospitals and old folks homes asking for his help to perform the final rites.

When he started as an undertaker 20 years ago, Kathiravan became aware of many people who died alone at old folks homes and hospitals with no family or loved ones to claim their bodies.

Financial Advisors

KUCHING: Over the past few years, financial advisory channels had seen a notable difference in the sector in terms of growth and development. As the Malaysian government became more conscious of the remarkable growth potential for the financial planning industry, it recognised the industry as an important profession.

Alvin Tan, the head of distribution for Standard Financial Planner (SFP), in a recently held seminar in Kuching noted that countries like Australia and Singapore had experienced a significant decrease in their quantity of tied life agents over the past few decades. This was due to a change in clients’ demands for a more comprehensive financial planning strategy over their life span.

According to him, Independent Financial Adviser (IFA) was a new distribution channel for agency businesses and therefore was important as they helped investors to navigate through the variety of financial products and information.

Recognising the growing importance of equipping the nation with quality products and services, Malaysia introduced financial planning regulations through Bank Negara Malaysia (BNM) and Securities Commission (SC), he highlighted.

BNM came up with the Five Years Renewal Commission on Life Insurance Business that was especially catered to agents who wished to qualify themselves as IFAs. This programme enabled individuals to take back their five years renewal commission after joining the financial planning industry.

Moving forward, as an IFA, the adviser was qualified to join in the Million Dollar Round Table (MDRT). An IFA’s qualification to obtain the MDRT was much easier than a tied agent’s qualification as only the insurance product for a tied agent was calculated,” Tan further noted. Meanwhile, for an IFA, his insurance products, investment products as well as financial planning fees were all calculated as part of the adviser’s production.

To date, SFP is the largest independent financial services dealer group in Malaysia, with the most licensed representatives in Malaysia. SFP helped advisers to build the three pillars of business assets that included multiple sources of income (investment, insurance and etcetera), sustainable recurring income stream (business assets) and SFP company equity participation (growth of the industry and company).

PAS For ALL

In 1969, PAS was on the same wave-length or perhaps even more right-wing and fundamentalist than ultra groups Perkasa and Pembela are now. Fast-forward to 2011, PAS leaders have moved on. They have pledged to the non-Malays and non-Muslims that in the event of any attempt to create chaos, PAS members will do their duty as good Muslims. They will form a human shield around their non-Malay fellow citizens. Not more than two months ago, PAS president Hadi Awang issued a stern warning to UMNO not to try and pull another crackdown

Anuradha Koirala

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Buy Life Insurance Online

MUMBAI: Private insurer Aviva Life Insurance today launched its online term plan Aviva i-life, with a minimum cover for Rs 25 lakh with no upper limit and a maximum term of 35 years.

"Our research with IMRB showed us that protection of family income in case of an unfortunate death is among the top three priorities for 52 per cent of Indians today. Hence, keeping in mind the customer need and demand, we have launched Aviva i-Life which can provide a high insurance cover at a low cost," Aviva India Director Marketing Gaurav Rajput said in a release issued here.

This company is a joint venture between Dabur Group and Aviva Group with a paid up capital amounts to Rs 2,004 crore.

Agent : Like A Blind Date

Back in the old days, the dream jobs were doctors and lawyers (and most likely teachers and air stewardesses for women). These days, the best careers are often in investment banking or consulting – insurance sales is always a secondary consideration. Here’s why…

You have to do telemarketing
Cold calling is like going on a blind date, only worse – it’s over the phone. You read a script you have memorised and start speaking at 100 words a minute. What are the chances that the person you are calling is actually thinking about their personal finance and planning for their life? Very remote. This isn't a love match.

You’re under quota pressure
Your boss is pushing you to meet your quota. Your only chance after failing to find new clients is from your personal network. But if your friends give you a clear no and you keep pushing, chances are you might lose some friends. Sometimes you just need to play hard to get because there are so many agents out there doing the same thing as you. As they say, don’t call a girl every single day.

Your colleagues lack talent
The insurance sector is always hiring recent graduates and provides really good training. The downside is that anyone who is vaguely human can potentially get hired as an agent – there is no quality control. Turnover rates are high because people with good sales skills often leave for other industries.

You don’t have a stable salary
Similar to most sales roles, compensation is largely commission based. Successful agents make lots of money and have big houses. To be one of them, you should treat your job as your own business – if you don’t have that mentality, don’t try out this industry.

You don’t keep regular hours
You have to work when other people are resting and chilling at home, unless your client is a housewife. But on the flip side, you have lots of flexibility. And when all your late nights mean you bring in new business, the operations people will love you because technically you are keeping them in a job. Without salespeople and their clients, firms don’t need research analysts, product specialists and administrative staff. So, there are upsides to being an agent after all.

Hong Leong Assurance

KUALA LUMPUR: Hong Leong Financial Group Bhd (HLFG) expects its takaful unit to register a gross contribution of RM100 million for the financial year ending June 30, 2011 from RM65.45 million last year.

The company’s takaful unit has now adopted a new name, Hong Leong MSIG Takaful Bhd (HLMT). This follows the acquisition of a 35 per cent equity interest by Mitsui Sumitomo Insurance (MSI) in HLMT for RM33.64 million.

HLFG president and chief executive officer Raymond Choong said with the new partnership, HLFG and MSI are now common strategic partners in the Malaysian insurance business, covering life and general insurance as well as takaful.

“We are optimistic that we can now further accelerate our growth as one of the leading insurance and takaful providers in Malaysia by leveraging on each other’s strengths, expertise and know-how,” he said.

He was speaking at a media conference to announce details of HLFG and MSI’s takaful partnership here yesterday. HLFG has at present a one per cent hold over the Malaysian takaful market.

Hong Leong Assurance Bhd (HLA) chief executive officer Loh Guat Lan said the company was looking to expand its distribution channels and leverage on the partnership with MSI to introduce innovative products as well as a strategic product mix.

“The synergistic activities of training and product development, are well in place, and we are looking forward to the roll-out of a series of compelling products from July,” she added.

Hong Leong obtained the takaful licence from Bank Negara in March 2006. Its takaful unit commenced business in November that year with a paid-up capital of RM100 million and authorised capital of RM1 billion.

In June 2010, MSI acquired a 30 per cent stake in HLA for RM940 million to expand into Malaysia’s life insurance business.

Life Insurance - Malaysia M&A

The financial sector liberalisation, introduced in April 2009, has set the stage for further consolidation in the insurance, takaful and Islamic financial landscape as competition intensifies with the emergence of foreign players in the market.

The need for adequate capital, good governance and risk management practices are other pertinent factors that have heightened the merger and acquisition (M&A) trail in the financial services sector.

Industry observers say the easing of restrictions on foreign ownership of Malaysian insurers to 70% from 49% effective last year under the financial sector liberalisation plan and the introduction of the risk-based capital (RBC) framework will likely see more M&A activities in the pipeline.

The move to allow foreigners to hold a 70% stake in insurance companies also applies for Islamic banks and takaful operators. The RBC framework, which was launched in January 2009, is aimed at ensuring insurance companies have ample capital to undertake risks in their daily operations.

According to Sta Maria, the smaller and less profitable insurers will continue to be targets for acquisition, especially by foreign insurers interested in penetrating the Malaysian market with the relaxation of foreign equity participation on a case-by-case basis for companies that can facilitate industry consolidation.

While adequate capital under the framework is good for an insurer or takaful operator as it allows for diversification and acceptance of higher business and investment portfolio risks, Sta Maria says what is more important is the placement of robust governance and risk management practices, adding that this will ensure resilience of the company in the event of a financial crisis.

Takaful Ikhlas CEO Datuk Syed Moheeb Syed Kamarulzaman feels organic growth is important but to expand fast it will be better for takaful to merge.

Takaful Ikhlas Sdn Bhd president and CEO Datuk Syed Moheeb Syed Kamarulzaman says organic growth is important but to expand fast it will be better for takaful to merge as its penetration rate as at June last year was around 10.3%. He says he expects a flurry of new M&As to arise when the proposed RBC framework for the takaful industry comes on stream in the near future.

Moheeb, who is also the chairman of the Malaysian Takaful Association, in a recent news report said this would lead to consolidation as some takaful operators might need to inject new capital under the proposed framework to maintain their licence to operate, resulting in the smaller ones to consolidate.

He adds that the takaful industry can expect a double-digit growth in 2011 of total net contribution. In 2010, the industry grew at 23.2%. Besides this, Moheeb sees more investment-linked products and products with affordable contributions.

Meanwhile, Syarikat Takaful Malaysia Bhd (STMB) group managing director Datuk Hassan Kamil feels that for takaful, it would be better to grow organically as the companies are too young to merge since their systems and processes have yet to mature and work efficiently. They need more time to build a strong foundation to merge, he says.

Hassan adds that although there is strong potential in the takaful business, nonetheless talent shortage and staff turnover is the main concern besides intense competition among takaful operators leading to “suicidal” and not sustainable rates for the general takaful commercial insurance.

As a result, some takaful operators are suffering losses or low underwriting surplus due to reckless underwriting and pricing, he adds. For takaful to grow, Hassan says, there should be proper framework and prudent management in the industry as the takaful base is still small compared with conventional insurance.

ING Insurance Bhd president and CEO Datuk Dr Nirmala Menon feels that the takaful industry has still got a long way to go and should focus on penetration of the underserved Muslim population.

For this to happen effectively, she adds there needs to be an emphasis on consumer education.

Given where Malaysia is, both in terms of penetration and spend by GDP, Nirmala believes there is ample opportunity for the industry to grow in the coming years as awareness and disposable income improve and age advances.

Abdull Aziz says for Islamic banks to grow, they need to venture beyond the traditional markets and establish footholds in emerging markets like Indonesia, Singapore and Thailand.

A Tribute To Zainal Aznam

The nation suffered a great loss on 30 April 2011 when Dato’ Dr. Zainal Aznam Yusof, a Malaysian economist (a member of the National Economic Advisory Council) passed away suddenly due to a massive heart attack. King Chai reflec

Dr. Zainal revealed that the proposed Equal Opportunity Commission (intended to correct inequality of opportunity due to racial discrimination or mistakes of the system) in Part 1 of the NEM, that was eventually abolished and the idea thrown out of Part 2 of the NEM.

He was unhappy that there wasn’t clear commitment or intention to fully carry out the implementation of the Equal Opportunity Commission from Part 1 of the NEM. He sincerely believe could mean equal opportunity for all Malaysians, regardless of race, religion or creed to pursue happiness and economic prosperity in this country, filled with multitudes of opportunity.

When Part 1 of the NEM was announced by the Prime Minister, Dato’ Seri Najib Tun Razak in March 2010, there was a clear deafening silence from the proposal with regards to the 30% equity of economic ownership of the Bumiputera (a legacy from the New Economic Policy 1971-1990) and a daring move towards the establishment of an Equal Opportunity Commission.

The reason why the EOC stood out is because it was a deliberate shift of affirmative action from being a hard-quota race-based policy towards focusing the bottom 40% of society. EOC is crucial in promoting a need-based affirmative action policy which aims to increase the chances or opportunities for those sidelined by the NEP to be able to compete on equal grounds to achieve higher economic or social standings in the society.

Dr. Zainal’s steadfast commitment and ability to propose a practical framework of application through the EOC have managed to raise even more awareness amongst Malaysians regarding the importance of putting the nation’s interest above everything else.

Below is an interesting article with a quote from Dr. Zainal, published in The Edge:

"After more than 50 years of independent growth, we are no closer to being racially blind… Current and future conflicts in Malaysia will be fuelled more by an outraged sense of inequality and unfairness in economic opportunities, and by dangerous politicians on both sides of the political divide."

We pray for you.
Rest in peace.

Managing Agent Compensation

THE life insurance and financial planning industries won't give up the thick end of half a billion dollars in commission without an almighty fight - yet life insurers themselves are primarily to blame for a rorted system that monumentally fails consumers and cries out for further reform.
Most planners and the insurance giants are already looking for ways around the new rules proposed by Assistant treasurer Bill Shorten, while mounting a rearguard action through the delicately poised federal Parliament. The longer reform is delayed, the more chance Labor won't be in power to do it. The immediate response of the opposition is to oppose, singing the industry's tune.

Meantime, surprise, surprise, your financial planner won't be so interested in encouraging you to take out life insurance through your superannuation fund (the most cost-effective method). There will no longer be up-front commission as high as 128 per cent of the premium with a trailing commission averaging 10 per cent a year.

If the Shorten reforms become law, expect many planners to simply "scope out" life insurance - they will exclude consideration of it from their duty of care, as clients will rarely be prepared to pay for the time required for a 22-page statement of advice, arranging underwriting, chasing up any medical issues and ensuring premiums are paid. Never mind that scoping out insurance effectively betrays the broader fiduciary responsibility now to be expected of planners.

But the commission game will continue outside superannuation, where most life insurance is still written despite the tax advantages of doing it through super.

And this is where the story gets dirty. Life-insurance premium costs are inflated by as much as 25 per cent through the industry's poor structure that allows planners and brokers to churn clients at the expense of all consumers and fails to reward those clients whose advisers opt for lower up-front commissions or are prepared to buy insurance themselves without being "sold" by a planner.

The current system provides an overwhelming incentive for independent agents to churn their clients, moving them from one major insurer to another to pick up those big up-front commissions.

The agent can rationalise that the client is no worse off for the churning - that the cover and premium would stay the same if he stuck with one company or moved - but it builds extra costs into the industry that are reflected in unnecessarily expensive premiums.

MLC, CommInsure and AXA offer agents alternative flat commissions instead of the big up-front come-on - about 30 per cent of each year's premium every year, a bit more than that from MLC. Offering only flat premiums would remove the incentive to churn, reducing costs. The insurer also benefits from not taking the initial commission hit and by having use of the premium to invest. Given the number of life policies that lapse after a few years, that should be a powerful incentive.

One insurance source reckons banning the big up-fronts, only offering the flat trailing commission, could reduce premiums by as much as 25 per cent. It would also encourage building an ongoing client relationship.

Which gets to the bigger problem of Australians being underinsured. The industry has lamely tried to claim that the big commission is necessary because risk products have to be "sold", Australians won't just buy them.

It was predictably trotted out by AMP, our biggest insurer, in response to the Shorten reforms. AMP financial services managing director Craig Meller said:

"The proposal to ban commissions on life insurance within superannuation is ineffective public policy, because it will inevitably exacerbate Australians' chronic level of underinsurance. Without the encouragement and support of a financial planner, many people do not appreciate the necessity to arrange adequate insurance. Arranging insurance can be complex and confronting for many people and financial planners make it easy for people to get the cover they need."

Spot the inherent contradiction - Craig says we're chronically underinsured, so the commission-driven sales-pitch approach simply isn't working anyway. Little wonder the industry is ripe for reform.

Maybe it's time to concentrate on simpler, more affordable products and less paperwork.

Michael Pascoe is a BusinessDay contributing editor