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