Operational and Actuarial Aspects of Takaful
description
Transcript of Operational and Actuarial Aspects of Takaful
Takaful Products and Development Issues
Sub TopicsClasses of TakafulGeneral Takaful ProductsFamily Takaful ProductsProduct DevelopmentRegulation on Products DevelopmentTakaful Performance by ProductsProduct Development Issues
Class of Takaful BizTwo main types of takaful business -
General Takaful and Family Takaful.
General Takaful provides protection on a short-term 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 - CharacteristicsUsually short-term contractsPremiums charged may varyContracts of indemnityPayment of a claim does not terminate a
contract The risk to be insured does not necessarily
increase over time
General TakafulMotorFireEngineeringMarineBondsMisc Accidents
Motor Takaful Comprehensive (Primarily for own damage) Third Party1. Bodily injury2. Property damage Personal Accident
Fire TakafulFire Takaful (fire and lightning) – usually for
properties in general not for dwellingHouseowners (plus other perils) – usually for
private dwellings and bundle with home financing
Consequential LossHome content
Engineering Takaful Usually refered to Plant and Machinery-1. Boliers2. Engine Plant3. Electrical/mechanical4. Lifting machinery
Marine TakafulHull – structural framework of vesselMarine CargoGoods in Transit
MiscellaneousBonds- Advance Payment and PerfomancePersonal AccidentBurglaryWorkman CompensationEmployer LiabilityFidelity GuaranteeMoney in TransitPublic Liability
Family Takaful - CharacteristicsLong term contractsPremium rate is usually fixedPayment of a claim usually terminates a life
insurable contractInsurable interest must be presentThe risk to be insured increases with time
Family TakafulIndividual (endowment)Investment LinkedGroup FamilyGroup CreditHealthCritical IllnessAnnuities
IndividualRegular contributionProvides for protection and savingsUpon maturity to receive the amount
accumulated in the investment account ( some with surplus sharing)
PIA on mudarabahUpon death to receive amount covered
Investment LinkedRegular or Single contributionProvides for protection and savingsParticipant have choice of investmentsCan vary sum to be coveredInclude Capital Protection and Structured
Products
Group FamilyAnnual basisEmployers, association affinity groups,
cooperatives.Usually protection onlySum covered usually fixed or a multiple of
salarySimplified underwritingContribution rates are preferred
Group CreditBundle with bank financial products Single Contribution* (sometimes financed by
the financier)Usually for protectionBenefits assigned to financierReturn of PIA amount on earlier redemption
Health TakafulHospitalization BenefitsDaily Room and BoardSurgical ProceduresPost and Pre Hospitalization CostsGroup or Individual plansAnnual basisSupplementary Spouse and Family benefits
Critical Illness TakafulFor Major Illnesses e.g. cancer, stroke, heart
and kidney failure36 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 9Guideline on Family Takaful ProductsActuarial Cert to include profit testingAssumptions must be realistic and prudent Section 3 - AssumptionsSection 4 - Discloser requirements
BNM Guidelines – JPIT 9Assumptions:
MEAve certificate sizeLevel of new businessExpected contingencies- short term v long termInvestmentsTaxesWithdrawal rates
BNM GUIDELINES – JPIT 16Guideline on Medical and Health BusinessSection 8 - Require clear underwriting
policiesSection 10 - Such policies properly
documented and communicated to staff concerned
Section 11- Repudiation of claim during underwriting period
BNM Guidelines – JPIT 16Section 19 - Consistency of definitions
amongst insurersSection 21– Appropriate product design Section 23 - Appropriate pricing policy
BNM GUIDELINES – JPIT 33Guideline on Investment Link BusinessSection 2 – Definition of IL PoliciesSection 4 – Scope of the GuidelinesSection 10,11,- Fund objectives must be clear
and Fund managed by its objectivesSection 14- Funds must be separatedSection 15-19 – Calculation of NAV and unit
price; company is responsible for any mistake.Section 24 – Minimum Death BenefitsSection 30 – Cooling off period of 15 days
BNM GUIDELINES – JPIT 33Section 34 – Allowable Charges to the FundSection 37 – Maximum Fund Management FeeSection 40 – Commissions for Single and Annual
premium policies ; Max 160% over 6 yearsSection 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 daysSection 75 – Only agents with CEILI can market IL
BNM GUIDELINES – JPIT 33
Capital Protected (Structured) IL1. 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 Investment Return in Participant’s Inv. Account
10% of the investment return generated from the Participant’s Investment Account will be distributed to the Operator.
Family Takaful 603.7
725.5
1,266.6
1,467.2
1,905.4
Growth of Family Takaful New Business
-
500.0
1,000.0
1,500.0
2,000.0
2,500.0
2004 2005 2006 2007 2008*
Co
ntr
ibu
tio
ns
(RM
'mil
lio
n)
Individual Ordinary Group Ordinary Annuity Investment Link
29.9%
15.8%74.6%
20.2%18.1%
CAGR 31.7%
Data Source: BNM & ISM
Growth of Life Insurance New Business
-
1,000.0
2,000.0
3,000.0
4,000.0
5,000.0
6,000.0
7,000.0
8,000.0
2004 2005 2006 2007 2008
Pre
miu
ms
(RM
'mil
lio
n)
Individual Ordinary Group Ordinary Annuity Investment Link
32.1%0.5% 8.9%
6.1% -6.0%
CAGR 8.3%
Data Source: LIAM
Life Insurance 6,533.3
6,563.5
7,150.3
7,584.7
7,127.0
Takaful v Insurance in Malaysia
Market Share (Insurance vs. Takaful)
-
2,000.0
4,000.0
6,000.0
8,000.0
10,000.0
2004 2005 2006 2007 2008Pre
miu
ms
+ C
on
trib
uti
on
s (R
M
'mil
lio
n)
Life Insurance Family Takaful
Market Share 2004 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
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
900.0
2004 2005 2006 2007 2008Gro
ss C
on
trib
uti
on
s (R
M 'm
illi
on
)
Fire Motor MAT Misc
CAGR 16.6%
22.2%12.1%
28.5% -1.9%
22.0%
Data Source: ISM
Growth of General Insurance Business
0.0
2,000.0
4,000.0
6,000.0
8,000.0
10,000.0
12,000.0
2004 2005 2006 2007 2008
Gro
ss P
rem
ium
s (R
M 'm
illi
on
)
Fire Motor MAT Misc
CAGR 6.4%
10.0%-10.0%
7.2%
20.5%
Data Source: PIAM
4.3%
Takaful 491.9 551.4 708.8 695.2 848.1
Insurance 8,520.4 9,369.6 8,431.8 9,041.0 10,895.6
Takaful v Insurance in Malaysia
Market Share (Insurance vs. Takaful)
0.0
2,000.0
4,000.0
6,000.0
8,000.0
10,000.0
12,000.0
14,000.0
2004 2005 2006 2007 2008Gro
ss P
rem
ium
+ C
on
trib
uti
on
s (R
M
'mil
lio
n)
Insurance Takaful
2004 2005 2006 2007 2008
Takaful 5.5% 5.6% 7.8% 7.1% 7.2%
Insurance 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
Takaful v Insurance in Malaysia
Growth Rate (Last 3yrs)
Asset size % GNICont/Prem % GNIAve Life Policy SizeAve Life Cont/PremAgents (per Co.)
Employees (per Co.)
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)
*Life – 5528:4680
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 marketingAdministration costClaim costFinancing cost
Profit (expected return on capital employed)
ISSUES (…contd)Different marketing channels have
different costsCosts can include:-
AdvertisingPrinting and brochuresCommissionTraining cost
ISSUES (…contd) Agency force (dedicated channel)
High training costHigh commission cost
Financial intermediaries (shared channel)Sales through banksConflict with other banking products
ISSUES (…contd) Financial Intermediaries
Little underwritingSimple products
Agency forceMore sophisticated products requiring
more “selling”Important: sophistication of products must have cognizance of administration support available
Syariah Council
Technical CommitteeActuary
Takaful Product
Shariah IssuesLifetime suicide clause…?Who can participate?Which businesses can be covered?Can operator co takaful with
conventional?
Legal IssuesExcept 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 ForceTakes time to built upMay be difficult for certain cultures to
acceptExpensive to train and maintainTested and proven intermediary sourceVery competitiveOpen to misrepresentation/misselling
risks (reputation risk)Best option with ‘complicated products’
Financial IntermediariesDistribution channel already in placeBank privy to customers financial
standingPackaging of products, e.g. motor
insurance, MRTA policiesLess price sensitiveSubject to internal competitionBest suited for ‘simple’ products
Administration CostIT CostUnderwriting cost/policy insurance
General management costMarketing/advertising cost
Claim CostActual claims (claim distribution)
Claims handling cost/legal costReinsurance/Retakaful cost
Financing CostsInsurance is a ‘money first’ business
Trust is paramountCapital intensive business (upfront expenses meeting statutory solvency margin)
All this capital requires financing
Product Success - KPIsTotal sum coveredNumber of certificatesTotal amount of contribution generated Profits realized Increase in the number of new clientsDemographic characteristics of customers
who purchased the productLapse rates, surrenders and claims
experience