Takaful Durian Runtuh

Life insurers are eager to get a piece of the few hundred million ringgit business that will be offered to Islamic takaful insurance players to provide a RM30,000 protection against death or permanent disability for a RM50 contribution for each of the recipients of the government cash award as proposed in Budget 2014.

Based on a contribution of RM50 per insured with a total of about 7.9 million people to be covered under the Group Takaful Rakyat 1Malaysia (i-BR1M) scheme announced in the budget, takaful players can expect about RM395 million annual contribution under this scheme, which is expected to start next year.

Under the Budget 2014, the 1Malaysia People’s Aid (BR1M) to households with monthly income of RM3,000 and below will be increased from RM500 to RM650, while for single individuals aged 21 and above with a monthly income not exceeding RM2,000, the amount will be increased from RM250 to RM300.

Though lauding the move by the government, Life Insurance Association of Malaysia (LIAM), which represents the 14 conventional life insurance companies, hopes the scheme will be shared with its members and not exclusive to the takaful companies.

“It is further hoped that the government will also extend the i-BR1M protection scheme to all insurance companies so that the rakyat will have ample alternatives to choose from,” said LIAM president Vincent Kwo Shih Kang in a statement yesterday.

Kwo said life insurance companies with strong distribution channels will be able to provide their services to the people, especially those in the under served areas.

Though the government has not provided further details about the scheme — whether it is a personal accident product or a group term takaful product, whether one takaful company will underwrite the whole scheme or will it be shared, whether the takaful companies are sufficiently capitalised to undertake the risks — the news bode well for takaful companies and its future growth in Malaysia.

The BR1M programme, which was started in January involving a RM2.6 billion allocation, is expected to benefit 5.2 million households — about 80% of the total households in the country — with cash aid.

Calls made to takaful operators revealed that the news came as a surprise. “Our senior management is having a meeting about this,” said a representative of a takaful company who declined to be identified.

Malaysia Takaful Association, which represents the takaful industry, reported that family takaful registered new business gross contribution of RM3.5 billion in 2012, a 30% growth compared to the RM2.7 billion registered in 2011.

According to the Financial Stability and Payment Systems Report 2012 released by Bank Negara Malaysia in March 2013, the “total assets of takaful funds grew by 12.4% to RM19 billion, with total takaful contributions accounting for 13.6% of total premiums and contribution in the insurance and takaful industry”.

According to LIAM’s statistics as at December 2012, the Malaysian population was covered with RM1.02 trillion, 8% higher than the corresponding figure in 2011 of RM946 billion.

LIAM also noted that the life insurance industry registered a new business growth of 2.2% with RM4.3 billion weighted premium in 2012 compared to RM4.2 billion in 2011.

Life Insurance Agent Cheats

A former insurance agent claimed trial at the Sessions Court today to separate charges of cheating an insurance client and laundering the RM76,611 from the illegal proceed.

Lim Cho Yaw, 32, allegedly induced telecommunications analyst Farid Mohamed Sani, 38, to give him a cheque for the purpose of settling the victim's housing loan instalment. However, instead of giving over the cheque to insurance company AIA Berhad, he laundered the money by banking it into his bank account.

 

He was accused of committing both offences at a Maybank branch at Kuala Lumpur City Centre, Suria Kuala Lumpur City Centre here between April 27 and 28, 2011.

 

If convicted for the cheating offence, he faces 10 year jail, whippings, fine imprisonment up to ten years, whipping, and fine while the penalty for the money laundering offence is RM5 million fine or five year jail or both.

Alternate Distribution Channel

Life insurance sales strategies are in need of a change if insurers ever want to saturate the middle market.

That was the focus of just one session at the 2013 LIMRA Annual Conference held Oct. 21-22 in New York. Speakers Todd Silverhart, corporate vice president and director of insurance research at LIMRA, and Manish Bhat, MetLife's senior vice president of global brand and digital marketing, spoke to how middle-income households are less likely to buy life insurance even though they know they need it, and how partnering with retailers may be the future of life insurance sales.

Referencing the 2013 Insurance Barometer Study, issued by LIMRA in partnership with the LIFE Foundation, Silverhart noted that though most consumers understand the need for life insurance (85 percent), many will not purchase a policy. The reason? Well, there are many, but a few are noted below:

"People don't really understand what company they should be going with and what policy to buy," said Silverhart. "Procrastination is another factor of course."
So what are the triggers that prompt people to purchase a policy? According to LIMRA, those are:

• Life event (41 percent)
• Planning event (25 percent)
• Financial advisor intervention (24 percent)
• Work-related event (23 percent)
• Media (18 percent)
• Family/friends intervention (12 percent)

With that said, how do life insurers reach the elusive middle market?

The key here is "find them where they shop."

According to the barometer study, 17 percent of those polled said they would be willing to purchase life insurance from a retail outlet.

"Seventeen percent may not sound like a lot, but a 17 percent increase in sales is not small," said Bhat. "When Amazon started, how many people thought they'd buy their books there instead of a bookstore?"

Bhat then referenced an article that suggests the life insurance industry needs more modern distribution channels. The kicker? The article was from the Journal of Marketing -- dated 1959.
Bhat notes that demand is not the problem, as 50 percent acknnowledge they don't have enough life insurance.

"This is something we can't solve with more agents -- there's just not enought of them," said Bhat. "Something must change."

Knowing that much of the middle market customer base is at large retailer - offering life insurance through easy-to-use kiosks set up in the pharmacy section of some stores. Though still in its testing phase, MetLife has noted that it has become the largest term life insurance channel at MetLife by application volume.

Maybe it's time for an industry that has remained practically unchanged from the start to venture into parts unknown. A stagnant industry is a troubled industry.

"[Life insurers themselves] set up this life insurance buying process to be what it is," said Bhat. "We created the problem."

Now it's time we solve it.

RM1,700 A Month Income

It was reported in The Star in August 2012 that there are 83,174 insurance agents in Malaysia, and that 65% if them earn less than RM20,000 a year (RM1,700 a month). That means only 35%, or about 29,000, make more than that amount. This dispels the myth that most insurance agents make a lot of money. In fact, the insurance agents’ income quoted above is below the average salary of a Malaysian worker, which stands at RM33,000 a year (RM2,750 a month).
Life insurance commission rates have been capped since 1996.

A Pope We Can Respect

Pope Francis (pic) has ordered the German Roman Catholic prelate known as the "luxury bishop" for spending some 31 million euros (RM127 million) on a residence to leave his diocese for an unspecified period, the Vatican said today.

The move, just short of a resignation, was taken against Bishop Franz-Peter Tebartz-van Elst of Limburg two days after he met the pope to discuss the scandal in the German Church at a time when the pontiff is stressing the importance of humility and serving the poor.

A Vatican statement said the bishop "was currently not in a position to carry out his episcopal ministry" and that he was ordered to leave the diocese while an investigation and audit into cost over-runs is held.

 

The diocese will be administered in the bishop's absence by a vicar. The issue has been an embarrassment for the pope, who has called for a more austere Church and has told bishops not to live "like princes".

German media, citing official documents, said the residence had been fitted with a free-standing bath that cost 15,000 euros (RM 65,000), a conference table that cost 25,000 euros (RM108,000) and a private chapel that cost 2.9 million euros (RM12.6 million).

Takaful In Malaysia

The local takaful industry is expected to see some merger and acquisition (M&A) activities over the next few years due to the Islamic Financial Services Act 2013 (IFSA) which requires takaful companies holding composite licences to separate their businesses by mid-2018.

The challenge is going to come in a few years as the new IFSA now requires licences to be split for general takaful and family takaful while the minimum capital requirement is going to be RM100 million. Out of 11 takaful players in Malaysia, three are sole family takaful operators and the remaining eight need to split their businesses.

He added that with one of the entry point projects aimed at Malaysia being 75% insured by 2020, a key factor that will help spur growth of takaful players is the ability to provide products in micro insurance and micro takaful.

Looking at the broader market - takaful players and insurers can't just service the middle income to higher income group. You have to look at the lower income group and rural areas hence the ability to come up with those sort of products for the market place will be very important moving forward.

According to EY's report, Malaysia has emerged as the world's largest family takaful market, securing close to three quarters of its domestic market share. The maturity of established regulations across all areas of Islamic finance in Malaysia, including sukuk issuance, has made Malaysia one of the top destinations for global institutions seeking to tap into the strong demand for long-term investments.

The size of takaful assets as at end of March 2013 was RM22.85 billion while the net contribution was RM7.6 billion. Another measure of success is the penetration rate which has increased from 8% in 2008 to 13% in 2012.

MAA - A Balancing Act

MAA Group Bhd is in danger of losing its listing status as it may not have enough funds left following the sale of its conventional insurance arm – Malaysian Assurance Alliance Bhd (MAA) – to buy a new core business, said its executive chairman Tunku Datuk Ya'acob Tunku Abdullah

That's because the Practice Note 17 (PN17) company plans to use the balance sale proceeds to recapitalise the general insurance unit of its Islamic insurance arm, MAA Takaful Sdn Bhd.
"There is no regularisation plan (to regularise its financial condition) on the table now. It is impossible to ask for a regularisation plan because there is nothing we can buy,"

He ruled out MAA Group borrowing money to acquire a new business. As such, the group plans to ask Bursa Securities for a further extension to submit a regularisation plan "because we are not going to buy a new business". It has been granted an extension of time of up to Nov 30, 2013 to submit the plan to the regulator.

Tunku Ya'acob blames its problem on the new Islamic Financial Services Act, 2013 (IFSA) which restricts MAA Group's activities, as the holding company of MAA Takaful, to the financial services sector that is expensive and something that the group can ill afford.

"So what financial service businesses are there (that MAA Group can buy)? A bank? I can't buy a bank. Stockbroking (firm)? That is very expensive. I definitely don't want to buy another insurance company. So, what else is there to buy?" Tunku Ya'acob said in frustration.

He argued that MAA Group's predicament is unique as it is not financially distressed, but that its hands are tied by the IFSA.