May 2019

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Life: Riding on government initiatives

Source: Asia Insurance Review | May 2014

Much has been announced on the regulatory front by Bank Negara Malaysia (BNM). But life insurers are taking it positively, looking ahead bullishly to ride on government initiatives to forge ahead.   
By Benjamin Ang 
The Malaysian government has set a target for the proportion of population insured to reach 75% by 2020. Given that only 54% of the population are insured currently (conventional and takaful), there exists great opportunities for growth, said Mr Vincent Kwo, President of Life Insurance Association of Malaysia (LIAM). 
The target was announced with the recent issuance of a concept paper, the Life Insurance and Family Takaful for Everyone (LIFE) Framework. It sees the central bank playing a proactive role to invigorate the industry as well as to encourage competition and innovation amongst insurers. 
“The foresight of delivering access to customers through diverse distribution channels would ultimately provide better value, advice, service and choice to them,” said Mr Kwo, a comment echoed by the other industry players we spoke to, such as Mr Kamaludin Ahmad, CEO of Etiqa Insurance & Takaful. Mr Kamaludin said: “The proposed reforms under the LIFE Framework are meant to encourage greater operational efficiency, innovation and higher level of insurance penetration in Malaysia.”
Grossly underinsured 
As a commitment of the industry to fulfil the national aspiration of having 75% of the population insured, LIAM engaged Universiti Kebangsaan Malaysia in June last year as its research partner to undertake the first protection gap study in the country, said Mr Kwo.
The findings revealed that many households are substantially underinsured. Even families whose primary wage earners have both life and medical insurance, the average protection gap was MYR553,000 (US$170,000) per family. “What it means is that when there is a death to the wage earner of the family, in order for the family to sustain its current lifestyle, they would need the sum of around MYR553,000,” he said. And the average mortality gap for each member of a family is between MYR100,000 and MYR150,000, based on the assumption of the study that each household in Malaysia consists of five family members (parents and three children), he added.
According to the report, “the findings of this study suggest that many Malaysian households are substantially underinsured. Considerable size of the protection gap is worrying since many dependents may not be able to maintain a reasonable lifestyle in the event of the death of the primary breadwinner or they may even be driven into poverty”.
Mr Philip Seah, CEO, Prudential Assurance Malaysia, who is “extremely excited and bullish” about the prospects of the life sector, also touched on the issue of underinsurance. It is an area of concern, and hence opportunity, as the average amount of sum insured is low at around MYR50,000. 
“Given the development of the country and enhancement in standard of living, the average sum insured is grossly inadequate – and Prudential can do something about it,” said Mr Seah.
In support of nation building
And for Prudential, the “something” is not all about business. It has pledged MYR50 million “in support of nation building”, to reach out to 50,000 families in the next five years through its CSR programme in conjunction with its 90th anniversary in Malaysia this year.
It aims to make a meaningful and long-lasting sustainable impact on society. The core focus of its efforts are on financial protection for the urban low income households with “PRUkasih” – a free financial protection plan for participating communities to provide temporary financial relief should the main breadwinner be unable to generate income for the family due to an accident, illness or death; and financial literacy amongst youth and children with “Cha-Ching” – its financial education programme.
“We don’t just want to give people hand-outs, we want to give them a ‘hand-up’,” said Mr Seah, who added that it is to “help them help themselves”. 
Takaful goldmine
On specific opportunities in the industry, Dato Koh Yaw Hui, CEO of Great Eastern Life Assurance (Malaysia), highlighted the takaful business. “With a population size close to 30 million, 42% of the population are insured through conventional insurance and only 12% are insured through takaful. In a country where 60% of the population are Muslims, it is a goldmine,” he said.
Hence, agency leaders in Great Eastern are also enhancing efforts on recruiting more takaful-focussed Muslim agents to spur growth as the increasing popularity of takaful is expected to grow the pie moving forward, he added.
The low penetration levels and increasing use of bancatakaful as a distribution platform is likely to see sustained growth for the family takaful sector for the next few years, concurred Mr Alex Low, Chairman, Malaysian Insurance and Takaful Brokers Association (MITBA).
Family takaful has been able to achieve higher growth due to the low market penetration and bancatakaful arrangements, said Mr Low, who is also Executive Director of Jardine Lloyd Thompson Sdn Bhd. New business contributions for family takaful surged 30% to MYR3.502 billion (US$1.078 billion) in 2012 as the entry of more takaful operators and a wider distribution network contributed to the substantial growth, he said.
One of Etiqa’s strategic focus this year is also on takaful as it aims to increase the productivity of its family takaful agents.
There is plenty of room for organic growth as Malaysia still has low penetration in both conventional, and especially takaful markets, said Mr Kamaludin. Etiqa Takaful Berhad (ETB) commands more than 30% of the market share in family takaful new business, he said, adding that the split between Etiqa Insurance Berhad (EI) and ETB is almost 50:50. 
Affluent market, online business
For Prudential, it has launched “PruPrestige” this year – its affluent marketing programme. “The product development and marketing will be different as the needs of the affluent market are different,” said Mr Seah.
Prudential will leverage on the knowledge and expertise of its bancassurance partners such as UOB and Standard Chartered in high net worth and privilege banking customers, in meeting the needs for this segment of customers. “It is not just products, but also the ‘touch and feel’ when delivering the service to the affluent market,” he added.
As for Etiqa, Mr Kamaludin said it will “continue its journey with the following priorities over the coming years”: increase focus on profitable cases and emphasis on regular premium businesses; increase recruitment of life agents and productivity of family takaful agents; launch new products focussing on investment-lined, retirement and endowment products; and embark on high potential opportunities in the online business by focussing on customer portal, mobile web, and applications. 
Investing in training and development
One area where Great Eastern is sparing no effort is in the area of training and development for its agents to differentiate itself from its peers. “We will continue to focus on training and recruiting professional agents,” said Dato Koh. And matching deeds with words, he shared that a Centre for Excellence where a MRY20 million investment was made has just been completed. Great Eastern also collaborated with HELP University, one of Malaysia’s leading institution of higher learning, to develop the curriculum. 
Dato Koh believes it is money well invested as the average productivity of a Great Eastern agent is “higher than the industry norm”. It will also help in recruiting more professionals and graduates through the state-of-the-art facilities in the Centre for Excellence – lecture theatres similar to what one will find in leading universities, and the software of the high quality training curriculum.
In a bid to further differentiate itself, Great Eastern with a history of 106 years in the country, has also introduced “Live Great Advisers”, a group of agents who are specially trained and verified to do things differently and more professionally in sync with its “Live Great Programme”. “These advisers will be differentiated by their service and professionalism in advocating Live Great and by their specially designed attire. They will provide end-to-end service. Helping and engaging clients pre-crisis and in their happy moments to live healthier, better and longer, and not just in moments of need when misfortune strikes,” he said. 
Consumption tax, policy changes
But of course, no market is without its challenges. Looking ahead, Mr Seah sees the Goods and Services Tax (GST) to be introduced on 1 April 2015, to impact the insurance industry indirectly. “It will impact life in general as it will impact a person’s disposable income, and hence buying and spending patterns,” he said.
The industry will have to work harder to position insurance as a need and of high priority, said Mr Seah. “Know your clients” and needs analysis will become even more important, or the industry will be competing with all other consumer products as a person’s disposable income drops.
And the raft of policy changes and regulations may also have some in the industry viewing it as a challenge. But the general sentiment was as summed up by Dato Koh, who said: “Whenever there are changes in regulations or policies, there may be some uneasiness initially as the industry needs time to readjust and train. But ultimately it is for the best for everyone as it strengthens market conduct and confidence in the industry. Adapting to the policies and tapping the opportunities that arise will be key.”
Quick company profiles
 Etiqa Insurance &  Takaful
 Great Eastern Life Assurance (Malaysia)
     Prudential Assurance Malaysia 
Distribution breakdown: “almost 60:40” between the commercial channels and bancassurance. Commercial channels include agency force, broking, online and affinities. Its strategy is to offer a unique and personalised brand of services across all types and classes of insurance, as well as takaful plans through a multi-channel distribution network. 
CEO Kamaludin Ahmad listed the following areas of focus: 
Transformation initiative to build a competitive and sustainable agency force;
On the bancassurance channel, promoting need-based selling sales model for all Financial Executives; and
Over time, the online trend may involve a shift from the intermediate channels (agency-based) to direct distribution.
Distribution breakdown: close to 90% agents, 8% bancassurance and “others” the remaining 2%. 
Although the productivity of its bank partner is high, the contribution of bancassurance channel is relatively lower due to the low number of its partner’s bank branches, said CEO Dato Koh Yaw Hui. “Most of the banks are already in exclusive bancassurance partnerships. We don’t expect the proportion to change significantly but will continue to be on the lookout for the right affinity partnerships.”
It currently has 17,000 agents and a key objective will be to accelerate efforts to recruit more Malays to tap the under-penetrated Muslim market in Malaysia.
Distribution breakdown: agency 82% and bancassurance accounts for the rest. Currently has about 15,000 agents, with intention to double the number in the next four to five years, said CEO Philip Seah. 
In March, Prudential and Standard Chartered agreed to extend and expand their strategic bancassurance partnership for a further 15 years. The new agreement will cover 11 markets and will commence on 1 July 2014. Prudential’s products will be exclusively distributed through Standard Chartered branches in nine markets – Hong Kong, Singapore, Indonesia, Thailand, the Philieppines, Vietnman, Indian, Taiwan, and Malaysia. In the other two markets – China and South Korea - Standard Chartered will distribute the products on a preferred basis. 
The extension of the relation between Prudential and Standard Chartered is a big testimony to the results and synergy the two organisations have enjoyed, said Mr Seah. “It will enable us to reach out to many more people. It is not just about the bank branches, but also about reaching out, such as, through the bank’s SME network and roadshows,” he said. 


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