Operational and Actuarial Aspects of Takaful

1. Operational and Actuarial Aspects of Takaful Topic 8 Product Distribution and Servicing

2. Sub Topics • Introduction • Types of Distribution Channels • Shariah Issues related to Distribution • Development of Marketing Strategy • Compensation Structures • Intermediary Management • Customer Services

3. Introduction • Product distribution and servicing plays a vital part in the success of any insurance or takaful operators • Takaful operators may have the following distribution channels : • Agency system; • Bankatakaful system; • Broking system; • Direct marketing system; and • E-channel/internet system

4. The Agency • Many takaful companies use agents for marketing Family takaful rather than General takaful products • In Family takaful one Principal approach • In General takaful max is two principals • Mainly commission based • In Malaysia max is 3 tiers (hierarchy) • Most effective for the retail market

5. Bankatakaful • An adaptation of the bancassurance concept as a result of the merger between banking and insurance services – one stop center • Emerged in the 80’s in Europe • Tax driven • Blurring of regulation between the 2 industries • Banks sees commissions as additional profits from existing clientele

6. Bankatakaful • Citigroup, HSBC, Credit Agricole are successful examples • Product bundling - particularly credit based types • Very rapid expansion – in Malaysia about 30% of Premiums but mainly single premium

7. Broking • Mainly General Takaful • In Malaysia additional license needed for Takaful Broking

8. Others • Direct Marketing includes Direct Mailing, Press Ads, Telephone Sales etc. • Response level is low, hence profits are dependent on volume • Internet sales is new. E.g. Takaful Ikhlas and Tune Money • E- Biz success presently towards servicing than sales

9. Shariah Issues • Intermediaries can act on a wakalah contract • Related from Busr bin Sa’id that Ibn Sa’di al Maliki said, “Umar aksed me to collect zakat and after I handed it over to him, he ordered that I be paid a fee. I said, ‘I work for the sake of God.’ He answered, ‘Take it. I used to work like you during the Prophet’s time and he paid me a fee and I told him exactly what you said to me. Then he said to me, ‘When you are given something without asking, take it and give charity.’” • Imam Shaukani said, “The hadith of Busr bin Sa’id showed that a person doing something with the intention of tabarru’ (in this case as an agent) may receive a fee.”

10. Shariah Issues • Legal perspective -Who does the agent act for? • Brokers are not agent of the Operator! • In the Malaysia the Act clearly indicates that the agent is the agent of the operator. • Property in the possession of an agent is considered to be property deposited with him for safe keeping. • Twisting or replacement of certificates is a major concern

11. Shariah Issues • The hadith of the Prophet says, “Indeed the action is by intention and every action will be rewarded with what is intended. Thus whoever migrates for the sake of God and His Messenger, his migration is for God and His Messenger, and whoever migrates for the sake of this world and its content, or for a lady to marry, his migration is for what he migrated for.”

12. Shariah Issues • Shariah perspective on promotions and advertising: The Quran says, “O ye who believe! Betray not Allah and His messenger, nor knowingly betray your trusts.” • Issue on monopolistic practices and deception: “Woe to Al-Mutaffifin. Those who, when they have to receive by measure from men, demand full measure, And when they have to give by measure or weight to men, give less than due. Do they not think they will be resurrected” (Al-Mutaffifin, 83:1-4).

13. Shariah Issues • Can a takaful intermediary market conventional products as well? • “ ..Allah (s.w.t) permitted trade while prohibited Riba.” (Al-Baqarah 2:275) • “Help you one another in righteousness and piety; but not in sin and transgression…” (Al-Maidah, 5:2) • Allah has explicitly forbidden all business transactions including injustice in any form to any of the parties, whether in the form of deceit or fraud or undue advantage or peril leading to uncertainty in the business or any dealing. (Al An’am, 6:151-152). • This is practiced in other countries

14. 3 P’s Product Place (market) People (distribution) Developing Marketing Strategy • 7 P’s: • Product • Positioning • Place • Price • Promotion • Packaging • Process

15. Examples in Marketing Strategy • Agency/Brokers – ease of communication to prospects, niche market • Direct Marketing – simple products (no explanation needed), mass target market, ease of processing • Bankatakaful – Target segmentation, product bundling, clean skin underwriting, competitive pricing • E Biz – Self service customers, no downtime on processing, self explanatory products, cheapest prices

16. Compensation Structures • Basis • Operator’s Model • Products • Regular v Single Contribution • Different Channels • Regulation • Very transparent; life insurance do not disclose commissions.

17. Intermediary Management • Recruitment Process • Training Process • Leadership Development • Biz Monitoring and Development

18. Recruitment • Muslims only? • Bumis in conventional biz is small in number. • Bumis are not enthused to sales jobs • Full time v Part time sales people • High current unemployment can be an opportunity

19. Training • Takaful Basic Exams (TBE) to be introduced • Passing the Basic Agency Mgt Course and Agency Mgt Training courses are requirements for promotion • A Shariah Financial Planning course is a must towards professionalism enhancement • CPD hours requirements to be in placed

20. Customer Services • Criticism that Takaful operators lacks proper service standards. • Shariah based companies should have higher standards than conventionals – Hadith; “Love others as you love yourself then would you be a man of faith” • Good customer service help retains customer and can also be the company ‘unique selling proposition’

21. End Thank you