Takaful Products and Development Issues
Download
Report
Transcript Takaful Products and Development Issues
Takaful Products and Development Issues
Sub Topics
Classes of Takaful
General Takaful Products
Family Takaful Products
Product Development
Regulation on Products Development
Takaful Performance by Products
Product Development Issues
Class of Takaful Biz
Two main types of takaful business - General
Takaful and Family Takaful.
General Takaful provides protection on a shortterm basis, normally covering a period of one year.
Family Takaful offers a combination of protection
and long-term savings, usually covering a period of
more than one year.
General Takaful - Characteristics
Usually short-term contracts
Premiums charged may vary
Contracts of indemnity
Payment of a claim does not terminate a contract
The risk to be insured does not necessarily increase
over time
General Takaful
Motor
Fire
Engineering
Marine
Bonds
Misc Accidents
Motor Takaful
1.
2.
Comprehensive (Primarily for own damage)
Third Party
Bodily injury
Property damage
Personal Accident
Fire Takaful
Fire Takaful (fire and lightning) – usually for
properties in general not for dwelling
Houseowners (plus other perils) – usually for private
dwellings and bundle with home financing
Consequential Loss
Home content
Engineering Takaful
1.
2.
3.
4.
Usually refered to Plant and MachineryBoliers
Engine Plant
Electrical/mechanical
Lifting machinery
Marine Takaful
Hull – structural framework of vessel
Marine Cargo
Goods in Transit
Miscellaneous
Bonds- Advance Payment and Perfomance
Personal Accident
Burglary
Workman Compensation
Employer Liability
Fidelity Guarantee
Money in Transit
Public Liability
Family Takaful - Characteristics
Long term contracts
Premium rate is usually fixed
Payment of a claim usually terminates a life insurable
contract
Insurable interest must be present
The risk to be insured increases with time
Family Takaful
Individual (endowment)
Investment Linked
Group Family
Group Credit
Health
Critical Illness
Annuities
Individual
Regular contribution
Provides for protection and savings
Upon maturity to receive the amount accumulated in
the investment account ( some with surplus sharing)
PIA on mudarabah
Upon death to receive amount covered
Investment Linked
Regular or Single contribution
Provides for protection and savings
Participant have choice of investments
Can vary sum to be covered
Include Capital Protection and Structured Products
Group Family
Annual basis
Employers, association affinity groups, cooperatives.
Usually protection only
Sum covered usually fixed or a multiple of salary
Simplified underwriting
Contribution rates are preferred
Group Credit
Bundle with bank financial products
Single Contribution* (sometimes financed by the
financier)
Usually for protection
Benefits assigned to financier
Return of PIA amount on earlier redemption
Health Takaful
Hospitalization Benefits
Daily Room and Board
Surgical Procedures
Post and Pre Hospitalization Costs
Group or Individual plans
Annual basis
Supplementary Spouse and Family benefits
Critical Illness Takaful
For Major Illnesses e.g. cancer, stroke, heart and
kidney failure
36 related illnesses
Usually individual plans
Product Development
Management Committee will evaluate product
proposals.
The Shariah Advisory committee will endorse the
product from the Shariah perspective.
The Risk Management Committee of the Board will
evaluate the level of risk for the product for
endorsement
External Appointed Actuary will attest the pricing and
certify the product.
Ratification by the company’s Board of Directors and
final approval of the product.
Submission to Regulatory Authority ( e.g. Bank Negara
Malaysia) for their endorsement and approval.
BNM Guidelines – JPIT 9
Guideline on Family Takaful Products
Actuarial Cert to include profit testing
Assumptions must be realistic and prudent
Section 3 - Assumptions
Section 4 - Discloser requirements
BNM Guidelines – JPIT 9
Assumptions:
ME
Ave certificate size
Level of new business
Expected contingencies- short term v long term
Investments
Taxes
Withdrawal rates
BNM GUIDELINES – JPIT 16
Guideline on Medical and Health Business
Section 8 - Require clear underwriting policies
Section 10 - Such policies properly documented and
communicated to staff concerned
Section 11- Repudiation of claim during underwriting
period
BNM Guidelines – JPIT 16
Section 19 - Consistency of definitions amongst
insurers
Section 21– Appropriate product design
Section 23 - Appropriate pricing policy
BNM GUIDELINES – JPIT 33
Guideline on Investment Link Business
Section 2 – Definition of IL Policies
Section 4 – Scope of the Guidelines
Section 10,11,- Fund objectives must be clear and Fund
managed by its objectives
Section 14- Funds must be separated
Section 15-19 – Calculation of NAV and unit price;
company is responsible for any mistake.
Section 24 – Minimum Death Benefits
Section 30 – Cooling off period of 15 days
BNM GUIDELINES – JPIT 33
Section 34 – Allowable Charges to the Fund
Section 37 – Maximum Fund Management Fee
Section 40 – Commissions for Single and Annual
premium policies ; Max 160% over 6 years
Section 50 – sales illustration must meet the minimum
requirement with respect to content and disclosures
Section 54 – Must provide at least an annual report
Section 57 to 59 – Must invest as illustrated, any
rebalancing must be done in 60 days
Section 75 – Only agents with CEILI can market IL
BNM GUIDELINES – JPIT 33
Capital Protected (Structured) IL
1.
100% capital protection at maturity of 3 years
2.
Takaful Protection up to 125% of Investment amount
3.
Unique & Diversified twin exposure to High Demand
Commodities (Oil, Copper & Zinc) and Real Estate
Assets from Japan and Europe
4.
Guaranteed highest return from the best portfolio
(which offers investors a chance to earn as high as 15%
p.a.)
Capital Protected IL
Initial Charges
Max of 3.00% of Single Contribution
Commission
Structure
(Wakalah Fee to
Distributor)
Max of 1.25% of Single Contribution
(Inclusive in the above 3.00% Initial Charges)
Surrender
/Premature
Withdrawal
Charges
None
Tabarru’ Charges
Max 0.5% of Single Contribution (inclusive in
the 3.00% Initial Charges)
Wakalah Fee on
10% of the investment return generated from
Investment Return the Participant’s Investment Account will be
in Participant’s
distributed to the Operator.
Inv. Account
Takaful v Insurance in Malaysia
Growth of Family Takaful New Business
Contributions (RM 'million)
CAGR 31.7%
2,500.0
29.9%
2,000.0
1,500.0
18.1%
1,000.0
20.2%
500.0
2004
Data Source:
BNM & ISM
2005
Individual Ordinary
Family Takaful
603.7
8,000.0
2006
Group Ordinary
725.5
2007
Annuity
1,266.6
2008*
Investment Link
1,467.2
1,905.4
Growth of Life Insurance New Business
CAGR 8.3%
Premiums (RM 'million)
15.8%
74.6%
32.1%
0.5%
8.9%
6.1%
-6.0%
2007
2008
7,000.0
6,000.0
5,000.0
4,000.0
3,000.0
2,000.0
1,000.0
-
Data Source:
LIAM
Life Insurance
2004
2005
Individual Ordinary
6,533.3
2006
Group Ordinary
6,563.5
Annuity
7,150.3
Investment Link
7,584.7
7,127.0
Takaful v Insurance in Malaysia
Premiums + Contributions (RM
'million)
Market Share (Insurance vs. Takaful)
10,000.0
8,000.0
6,000.0
4,000.0
2,000.0
2004
2005
2006
Life Insurance
Market Share
2004
2007
2008
Family Takaful
2005
2006
2007
2008
Family Takaful
8.5%
10.0%
15.0%
16.2%
21.1%
Life Insurance
91.5%
90.0%
85.0%
83.8%
78.9%
Takaful v Insurance in Malaysia
Growth of General Takaful Business
Gross Contributions (RM 'million)
CAGR 16.6%
22.0%
900.0
800.0
700.0
600.0
500.0
400.0
300.0
200.0
100.0
0.0
2004
491.9
CAGR 6.4%
Gross Premiums (RM 'million)
2005
Fire
Takaful
-1.9%
2006
2007
12.1%
22.2%
Data Source:
ISM
28.5%
551.4
Motor
MAT
708.8
Misc
695.2
848.1
Growth of General Insurance Business
20.5%
12,000.0
10,000.0
2008
4.3%
10.0%
-10.0%
7.2%
8,000.0
6,000.0
4,000.0
2,000.0
0.0
Data Source:
PIAM
Insurance
2004
2005
2006
Fire
8,520.4
9,369.6
Motor
MAT
8,431.8
2007
2008
Misc
9,041.0
10,895.6
Takaful v Insurance in Malaysia
Gross Premium + Contributions (RM
'million)
Market Share (Insurance vs. Takaful)
14,000.0
12,000.0
10,000.0
8,000.0
6,000.0
4,000.0
2,000.0
0.0
2004
2005
2006
Insurance
2004
Takaful
Insurance
2005
2007
2008
Takaful
2006
2007
2008
5.5%
5.6%
7.8%
7.1%
7.2%
94.5%
94.4%
92.2%
92.9%
92.8%
100.0%
100.0%
100.0%
100.0%
100.0%
Takaful v Insurance in Malaysia
Growth Rate (Last
3yrs)
Asset size % GNI
Cont/Prem % GNI
Ave Life Policy Size
Ave Life Cont/Prem
Agents (per Co.)
Employees (per Co.)
*Life – 5528:4680
Takaful
Insurance
32.0%
6.7%
1.5%
18.3%
0.4%
3.8%
RM 40,000
RM 70,000
RM 900
RM 1,400
60,197
(7,525)*
113,653
(2706)*
2,411 (301)
20,825 (496)
ISSUES
Choice of Takaful Model
The key to product development and pricing is
understanding what the expected outgoes are, where
income is from and what risks are being taken.
Product Choice as a strategy?
Pru Bsn – Family Biz and IL
CIMB – Motor and Fire
ISSUES (…contd)
Pricing of Products must provide for: Cost of marketing
Administration cost
Claim cost
Financing cost
Profit (expected return on capital employed
)
ISSUES (…contd)
Different marketing channels have different
costs
Costs can include: Advertising
Printing and brochures
Commission
Training cost
ISSUES (…contd)
Agency force (dedicated channel)
High training cost
High commission cost
Financial intermediaries (shared channel)
Sales through banks
Conflict with other banking products
ISSUES (…contd)
Financial Intermediaries
Little underwriting
Simple products
Agency force
More sophisticated products requiring more
“selling”
Important: sophistication of products must
have cognizance of administration support
available
ISSUES (…contd)
Syariah Council
Actuary
Technical Committee
Takaful Product
Shariah Issues
Lifetime suicide clause…?
Who can participate?
Which businesses can be covered?
Can operator co takaful with conventional?
Legal Issues
Except for some countries e.g. KSA Common
Law is applied
Current Takaful contracts reflects
appropriately relationship of operator and
participants?
Will the courts view takaful contracts as
insurance contracts?
Who does the Tabarru’ Fund belongs to?
Agency Force
Takes time to built up
May be difficult for certain cultures to accept
Expensive to train and maintain
Tested and proven intermediary source
Very competitive
Open to misrepresentation/misselling risks
(reputation risk)
Best option with ‘complicated products’
Financial Intermediaries
Distribution channel already in place
Bank privy to customers financial standing
Packaging of products, e.g. motor insurance,
MRTA policies
Less price sensitive
Subject to internal competition
Best suited for ‘simple’ products
Administration Cost
IT Cost
Underwriting cost/policy insurance
General management cost
Marketing/advertising cost
Claim Cost
Actual claims (claim distribution)
Claims handling cost/legal cost
Reinsurance/Retakaful cost
Financing Costs
Insurance is a ‘money first’ business
Trust is paramount
Capital intensive business (upfront
expenses meeting statutory solvency
margin)
All this capital requires financing
Product Success - KPIs
Total sum covered
Number of certificates
Total amount of contribution generated
Profits realized
Increase in the number of new clients
Demographic characteristics of customers who
purchased the product
Lapse rates, surrenders and claims experience