Are We Ready for Tomorrow?
The Malaysia Insurance Summit (MIS) once again took the centre stage on 1-2 October 2012 in Kuala Lumpur. This year, the 2nd Malaysia Insurance Summit 2012 (MIS 2012) channelled its focus to anticipate future challenges and developments of the industry wi
IBright Future for the Malaysian Insurance Industry
n his keynote address during the opening ceremony of the 2nd MIS 2012, YB Senator Dato’ Donald Lim Siang Chai, Deputy Minister of Finance 1 from the Ministry of Finance Malaysia, advised the industry to make significant changes in order to raise the performance standards in the Malaysian insurance industry in tandem with the global advances. If the industry makes such significant changes it will narrow the gap between the standards and performance of Malaysian insurers with the established international best practices and performance standards.
“The ability of the domestic insurance industry to capture a share of this growth will depend on the ability of the insurers to maintain their competitive positions both within the industry specifically, as well as the financial sector generally, in the face of new challenges and the changing financial and economic environment,” he said. He also added that domestic financial institutions in Malaysia are undergoing restructuring, consolidation and rationalisation due to these changes.
Having greater scale, there is an increased investment in technology and talent as the customers nowadays are getting more complex and educated. A sufficient talent pool is needed by the industry in meeting the needs of more informed customers. Therefore, he urged the industry to continuously participate in skill enhancement programmes, organised by MII, to prepare their people with the right skills and knowledge, in elevating their professionalism.
Information Age – Effects of Globalisation to Our Data Protection
“The Malaysian insurance industry is facing various risk issues due to globalisation. It now has to respond to the rising economic and financial risks, pandemic standards requirements, effective supply chain and geo-political risks,” said Mr Peter Phillips, Principal Officer and Managing Director of Markel International Singapore Pte Ltd.
“With the Malaysian insurance industry shaped up by foreign direct investment and global enabling trade index, it is highly influenced by the changes happening globally. One of the biggest risks affecting the industry is explosion of data risks,” said Mr Phillips.
He also added that the rapid increase is made evident by the fact that 90% of the world’s data was generated in the last two years. Therefore, data need to be kept effectively and efficiently. In this information age, data management has become a critical task for everyone as it can now be migrated to the public view via digital networks. It is important that we protect this data. The current traditional policy in Malaysia also needs to be reviewed and replaced with a more specialised policy that covers the loss of data and the security of networks to protect customers’ and shareholders’ rights.
Foreign CEOs Looking to Malaysia for Growth
The 2nd MIS 2012 continued with a forum session focusing on foreign leaders’ perspectives on the Malaysian insurance industry moderated by En Wan Saifulrizal Wan Ismail, Associate Director from Towers Watson, Malaysia. The participating foreign CEOs shared similar views that Malaysia is a very attractive market with significant growth potential. Mr Matt Harris, CEO of Chartis Insurance Malaysia Berhad defined four financial sustainability factors that make Malaysia a unique avenue to venture into:
1) Resilience: the economy has proven to be
resilient to global financial challenges
2) Profitability: sound industry profitability record
3) Immunity: minimal natural catastrophe
4) Penetration: low penetration, opportunity for
However, the industry, especially for the life insurance market, faces a number of challenges that need to be looked after to ensure market robustness. According to Mr Jens Reinsch, CEO of Allianz Life Insurance Malaysia Berhad, the Malaysian life insurance industry still lacks human talent to drive the business and this may well lead to limited products innovation especially for longerterm investment.
In 2012, there were only two 20-year Malaysian government securities produced by the market. Malaysia has a small market penetration of 42.8% or only 12 million in-force policies out of a population of 29 million Malaysians. This shows that the public is still not well informed about insurance. This also leads to low productivity and income earned by the agents with 65% of agents earning less than RM20,000 per year.
Dialogues and industry revisions need to be conducted by the life insurers to find ways to improve market performance, as suggested by Mr Reinsch. Insurers in Malaysia need to have a “growth agenda” by investing and expanding their businesses to build and grow a profitable business.
En Azim Mithani, CEO of Prudential BSN Takaful Berhad shared the opportunity in the Islamic finance market or takaful to compliment the growth of insurance in Malaysia. Compared to the UK, Malaysia has a more vibrant and stronger growing Islamic financial industry and the industry’s financial assets are expected to grow by 40% by 2020.
Finding and Retaining the Best Talents
Prof. Datuk Razali Mahfar, Perdana School of Science, Technology & Innovation Policy, Universiti Teknologi Malaysia shared that most insurers do not have a clear capability for the development of a holistic organisational framework. For that reason, identifying people to train for the company talent pool is crucial through coaching and mentoring with formal and informal leaders for the insurers to leverage on staff style diversity and to make full use of their potentials.
The role of managing talent is not only down to the Human Resource unit but is also a prominent role of the company CEOs or leaders. Pn Khadijah Abdullah, CEO of The Malaysian Insurance Institute further added, “CEOs must now think how they can build the next generation as their successors and manage their current talent well in order for them to maintain the company’s relevancy in the market.” This statement was later agreed to by Mr Mark Greenwood, Regional Director of Chartered Insurance Institute, UK, “Talent was also identified as the fastest growing risk with short supply of talent particularly in Asia, which can have a detrimental effect on business.”
Hence, we should focus on training and to take this middle path apart from long-term education to build up staff skills. Dato’ Dr Adnan Alias, CEO of IBFIM added that the competency framework for the industry (insurance and takaful) charts the key skills that the industry needs. Importance of managing homegrown talent in the industry is also carried out by the Government. According to En Johan Mahmood Merican, CEO of Talent Corporation Malaysia Berhad, “One of the strategies is to build networks of top talent in the country to ensure a steady stream of readily available talent by developing diasporas networking platforms, building networks of future leaders and engaging the expatriate community.” The session was moderated by En Mohamed Farrish Ersalle, Chief Human Resource Officer of Prudential BSN Takaful Berhad.
Takaful – Are We Ready to be the World Leader?
The second day of 2nd MIS 2012 commenced with a thought-provoking forum session moderated by Prof. Datuk Dr Syed Othman Alhabshi, Chief Academic Officer, INCEIF on the topic of “Takaful:
The Challenges” that discussed the pertinent conflicting issues the shariah members have which can slow down the takaful market performance in Malaysia. Dr Younes Soualhi, Chairman of the Shariah Board Munich Re Takaful Malaysia affirmed that there is no compromise in shariah compliance. However, most of the corporate framework practice nowadays is not transparent enough for the Company Directors and Shariah Committee to work hand-in-hand to determine the best business management model and products that would best fulfil the shariah compliance requirement. “The Shariah Committee is an independent entity and its decisions might not align with the company requirement. Notwithstanding that, the Shariah Committee should provide guidance to company directors to determine company shariah compliance practice,” said Dr Younes.
In some jurisdictions, regulatory and shariah requirements also make it difficult for takaful and retakaful providers to operate in Malaysia in which the takaful providers are not allowed to share their risks with non-retakaful operators whilst the industry is currently lacking strong retakaful providers that are able to withstand the ever-challenging demands from the market while most reinsurers have a better capital base. Although, the Shariah Committee allows insurers to cede their risks at other non-takaful and non-retakaful providers it must be continuously reviewed as advised by Dr Uzaimah Ibrahim, Ahmad Ibrahim Kulliyah of Laws, IIUM. On the other hand, Dr Mohamad Akram Laldin, Executive Director, International Shariah Research Academy for Islamic Finance mentioned that it is understandable for this decision to be made but exception should only be given if there is no other avenue to go, as a last resort.
The other issue in the takaful industry that should be taken into further consideration is the stringent level of the shariah compliance in Malaysia to allow an insurer and agent to market both insurance and takaful products. What if they do not comply with the shariah requirements? According to Dr Yuones, there are two forms of shared services in the takaful industry: one, the technical shared services in which infrastructure such as IT is shared by the takaful provider and insurance company, and two, the substantial shared services is a practice where a company or an agent is selling both takaful and insurance products. However, it is erroneous for the company to sell both products under one roof. Therefore, takaful providers and insurers should take these two parameters into consideration to avoid business misconduct.
The Aftermath of M&As
Mr Keith Walter, Director of Risk Consulting & Software, South East Asia, Towers Watson, Singapore referred to Asia as a critical platform to many strategies that drive company value. “Malaysia is a critical base in South East Asia. The rising population of 29 million, strong GDP growth of 5.1% and a big untapped market make Malaysia a strong platform to expand business,” Mr Walter remarked. However, insurers still need to reflect on several perspectives before they materialise their M&A plan:
1. Financial perspectives – assets utilisation and
2. Organisational perspectives – human capital,
knowledge and culture
3. Customer perspectives – sales and clients
4. Process perspectives – propositions and
Mr Jahanath Muthusamy, CEO of AXA Affin General Insurance Berhad raised a few issues with regards to M&As. How can different people with different backgrounds work together? Can we choose the best products from the diverse lines to focus on and how can we integrate different distribution channels? Thus, he suggested his own key learning points derived from his own experience in Affin AXA:
1. Integrating different areas in a business requires the companies to consider important factors for success in M&A, such as getting the right people to consult the major activity. As a client, the company has the right to demand highly experienced consultants who are able to give the right advice and apply themselves to different scenarios of the challenges faced.
2. Thorough planning is required prior to the integration stage. Secondment and mobility are necessary to avoid “cultural shock” which can lead to more severe adaptability situations among members in the organisation. Through his own observations from past M&As, companies should place reasonable expectations on the new company growth during the year of integration as it will need some time to gear up. Therefore, preparation is the key success for this activity.
Most of the tasks and key considerations described have to be done between the time of signing of the agreement to purchase and the transfer date, to ensure that the M&A activity will bring success to the business. The session closed with a conclusion made by Mr S. Jayakumar, Deputy CEO of Tokio Marine Insurance (Malaysia) Berhad. He remarked, “Any M&A is a very difficult time for both the acquired company as well as the acquiring company. It needs a lot of hard work and dedication from the staff plus astute project and time management. Issues regarding people and systems need to be carefully handed. Nevertheless, integration can only be successful if we retain the business that we want to write.” The forum session was moderated by YBhg Dato’ Haji Syed Moheeb, the former President & CEO of Takaful Ikhlas Sdn Bhd.
Longevity Risk: Challenges and Opportunities
Long-term care is a variety of services that include medical and non-medical care to those who have chronic illnesses and disabilities; this is usually prevalent amongst the elderly. With life expectancy in Malaysia at 74 years old, about 20 years of living without income after retirement is an emergency call for citizens to acquire a comprehensive retirement protection plan which includes long term care products, reverse mortgages and annuities. Some information about annuities in Malaysia is with the SAKK and SATK (EPF Annuity Scheme).
The SAKK and SATK were introduced by EPF in 2000, with over RM4 billion collected from over 200,000 EPF members in less than a year that it was launched. However, countless objections were made against these schemes with speculation that companies were making excessive profits from the products, agents were mis-selling the products (30,000 agents were involved) and the products were misunderstood (particularly SAKK), which led to its suspension by the Prime Minister.
What we have missed is that with increasing life expectancy in recent years and a continuing expected future mortality improvement, it is difficult to project annuity. This is the key challenge to insurers today in quantifying longevity risk without making annuities too expensive for the public to
acquire. Challenges such as onerous capital requirements for annuities under the current Risk Based Capital (RBC) Framework, lack of suitable long term assets in Malaysia and poor reputation of annuities in Malaysia can be a deterrent unless it receives strong support by the Government (both in terms of assets and regulations) and proper education to consumers.
“Another point to consider is to make annuitisation compulsory to the public and the new introduction of products to the younger generation who are more receptive to innovation and changes,” said Cik Farzana Ismail, Actuarial Partners Consulting in her presentation, entitled “Longevity Risk: Challenges and Opportunities.”
Can Malaysia Withstand Natural Catastrophes and Pandemics?
24 December 2004 marked a good lesson for Asian insurers and reinsurers after the massive catastrophic event of the Andaman Tsunami that hit Penang, Malaysia and Acheh, Indonesia and killed thousands of people and shattered the affected businesses in both countries. Eight years after the incident, we can still hear updates and news on several tsunami occurrences in the region. The Thailand Flood was the costliest disaster of the decade and also had a major impact on the industry with claims still being paid out by Malaysian insurers and reinsurers. So, what can we learn from these scenarios? Should we predict these disasters to avoid losses? What can we do to prepare ourselves? This issue was discussed in the final forum session of the 2nd MIS 2012, moderated by Mr G. Roy S. Sharma, Principal Officer and Managing Director, Asia Reinsurance Brokers (Labuan) Ltd, Malaysia.
Prof. Koh Hock Lye from UCSI University suggested three key factors to withstand this growing threat: 1) Awareness, 2) Education and 3) Preparedness. The citizen and public businesses need to be insured and they need to be prepared through education and awareness campaigns. He said, “Insurers on the other hand need to conduct on-site surveys soon after the event to develop a database. They also need to work with international experts, local authorities and researchers to gather as much information and forecast facts for insurers and reinsurers to come out with better products that would best protect the interest of the policyholders and business frameworks that will protect their business interests as well.”
Malaysia is considered a relatively sheltered place from major catastrophic events. However, in recent years we have seen the peaceful country being affected by several natural disasters like earthquakes, tremors, tsunami, rain storms, flash floods, landslides and haze. From 1980 to 2011, Malaysia experienced 170 loss events that have caused 1,060 fatalities and overall losses of USD2,700 billion (RM8,262 billion)! With increasing episodes of natural disasters, we are expecting a doubling of the amount of losses in the next 10 years if no proactive measure is developed. Therefore, Mr Marcus Hanrieder, CEO of Munich Re, Malaysia believes that strategic measures have to be put in place to ensure a company’s sustainability through these unpredictable losses.
A pandemic is a cross-national or worldwide outbreak of an infectious disease while an epidemic is an outbreak in a localised area and period. Even though pandemics have been observed throughout history, there is still no sign of them abating. Globalisation has made the world borderless in everything. Today, influenza has been identified as the most common pandemic, which is likely to occur approximately every 30 to 40 years on average. According to Mr Ravinder Singh, Deputy General Manager & Head of Life, South & South East Asia, Hannover Life Re Malaysian Branch, flu pandemics can disproportionately affect healthy young adults (aged 20 – 45), resulting in a W-shaped mortality curve. This will financially impact an insurer’s balance sheet as the young adults are overrepresented in insurance portfolios.
Nevertheless, insurers can still proactively deal with pandemic threats and catastrophes with several reinsurance solutions, as suggested by Mr Ravinder Singh:
1. Non-proportional reinsurance covers on the life insurance portfolios (however not always easy to obtain)
2. Ceding a bigger portion of the business (might
not be desirable by the primary insurers)
3. Combination of a lower retention and a higher
profit commission on the proportional business.
The 2nd MIS 2012 which was organised by The Malaysian Insurance Institute gathered 33 key local and international industry leaders and professionals to address critical issues and the key challenges currently faced by the insurance industry in Malaysia and other parts of the world. The summit successfully attracted 130 participants consisting of insurance and takaful professionals throughout the Asian region. i
USD1.00 = RM3.06
From left: En Azli Munani, CEO of Malaysian Takaful Association, Pn Khadijah Abdullah, YB Senator Dato' Donald Lim Siang Chai, Mr Francis Lai Vun Sen, Director of MII and En Shaiful Arbi Abdul Aziz, representative from Malaysian Insurance and Takaful Brokers Association.
From left: Prof Koh Hock Lye, Mr Kang Thean Shong, Mr G. Roy S Sharma, Mr Marcus Hanrieder and Mr Ravinder Singh
Mr Peter Philips
From left: En Azman Ismail, Dr Mohamad Akram Laldin, Prof. Datuk Dr Syed Othman Alhabshi, Dr Yuones Soualhi, En Zainal Kassim and Dr Uzaimah Ibrahim
From left: Prof. Datuk Razali Mahfar, Dato Dr Adnan Alias, En Mohamed Farrish Ersalle, Pn Khadijah Abdullah, En Johan Mahmood Merican and Mr Mark Greenwood.