Bal­anced Score­card for Life In­surance and Fam­ily Taka­ful Mar­kets in Malaysia

THE RISE OF CONSUMER PRO­TEC­TION AND THE PRIN­CI­PLES OF TREAT­ING CUS­TOMERS FAIRLY (TCF) IS A PAR­A­DIGM SHIFT FOR FI­NAN­CIAL SER­VICES IN­DUS­TRY, ES­PE­CIALLY FOR IN­SURANCE COM­PA­NIES. CUS­TOMER CEN­TRIC­ITY IN BUSI­NESS RE­LA­TION­SHIPS IS NOT JUST FOR COM­PLI­ANCE PUR­POSE

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Across the bor­der in Sin­ga­pore, MAS has in­tro­duced the Fi­nan­cial Ad­vi­sory In­dus­try Re­view (FAIR) which pro­poses a num­ber of changes with re­spect to mar­ket con­duct in­clud­ing a de­tailed re­mu­ner­a­tion struc­ture for in­ter­me­di­aries based on a Bal­anced Score­card (BSC) ap­proach. The Sin­ga­pore in­dus­try has since com­pleted a one-year pi­lot and the BSC is now ef­fec­tive. In Malaysia, TCF ini­tia­tives started sev­eral years ago in line with the “Launch-and-File” prac­tice for life in­surance prod­ucts. With the new Life In­surance and Fam­ily Taka­ful (LIFE) Frame­work re­cently in­tro­duced by Bank Ne­gara, fair treat­ment of con­sumers is fur­ther em­pha­sised. BSC for life in­surance and fam­ily Taka­ful in­ter­me­di­aries will be in­tro­duced as a tool to fur­ther the fair treat­ment for con­sumers.

The un­der­ly­ing ra­tio­nale for ap­ply­ing BSC to in­ter­me­di­aries is twofold. Firstly, the in­ter­ests of in­ter­me­di­aries and the con­sumers may not al­ways be aligned in a sales­based re­mu­ner­a­tion mod­els, hence pro­vid­ing non-sales based re­mu­ner­a­tion can be an ef­fec­tive tool to pro­mote consumer’s in­ter­est. Se­condly, com­pen­sa­tion sys­tem can help to shape bet­ter sales be­hav­iours thereby re­duc­ing the like­li­hood of mis-sell­ing by the in­ter­me­di­aries.

Un­der the LIFE frame­work, a pro­por­tion of an in­ter­me­di­ary’s re­mu­ner­a­tion will be de­pen­dent on whether the rep­re­sen­ta­tive has acted pro­fes­sion­ally in per­form­ing needs anal­y­ses, rec­om­mend­ing suitable prod­ucts, and pro­vid­ing ad­e­quate dis­clo­sures for the con­sumers, amongst oth­ers. This will help to align the in­ter­ests of in­ter­me­di­aries with their cus­tomers, and over the longer term, boost consumer con­fi­dence in the pro­fes­sion­al­ism of the life in­surance and the fam­ily Taka­ful sec­tors.

How­ever, com­pa­nies should not view BSC as sim­ply a per­for­mance grad­ing ta­ble for the in­ter­me­di­aries. In de­sign­ing a BSC frame­work, com­pa­nies should start with defin­ing its Fair Deal­ing strat­egy and then use BSC as a means to achieve the Fair Deal­ing out­comes over the long run. A BSC is a holis­tic per­for­mance man­age­ment tool. It com­prises of three com­po­nents: (1) the per­for­mance man­age­ment in­fras­truc­ture which sets out the gov­er­nance, in­clud­ing the roles and re­spon­si­bil­i­ties of dif­fer­ent func­tions and de­part­ment re­spon­si­ble for the ad­min­is­tra­tion of the BSC sys­tem; (2) the per­for­mance man­age­ment process which sets out the de­sign of the strat­egy map­ping into care­fully de­fined per­for­mance mea­sures (“hard” con­trols) for the in­ter­me­di­aries; and (3) the per­for­mance man­age­ment cul­ture (“soft” con­trols) that is based on per­for­mance ac­count­abil­ity. The BSC com­bines an in­ter­nal con­trol frame­work to­gether with both hard con­trols (i.e., KPIs) and soft con­trols (i.e., cul­ture) to de­liver spec­i­fied cor­po­rate ob­jec­tives. It is a liv­ing tool, with re­volv­ing tar­gets, mile­stones and ac­tion plans over time.

From a “top-down” per­spec­tive, the key suc­cess fac­tors in im­ple­ment­ing BSC in­clude ob­tain­ing top man­age­ment sup­port and com­mit­ment,

A BSC is a holis­tic per­for­mance man­age­ment tool.

en­gag­ing a broad base of lead­ers, man­agers and staff in the de­vel­op­ment process, choos­ing the right BSC cham­pion, main­tain­ing in­ter­ac­tive and multi-way com­mu­ni­ca­tions, and view­ing the score­card as a long-term jour­ney rather than a short-term project.

In defin­ing suitable per­for­mance mea­sures, or­gan­i­sa­tions can be­gin with a well-de­fined strat­egy and de­rive the link­ages be­tween the strate­gic ob­jec­tives and its met­rics. The mea­sure­ments should bal­ance be­tween fi­nan­cial vs non-fi­nan­cial as well as short-term vs long-term as­pects. The fo­cus should be on lead­ing mea­sures (out­come fo­cus) rather than lag­ging mea­sures (out­put fo­cus) to pro­pel the or­gan­i­sa­tion for­ward with com­pet­i­tive edge.

In con­clu­sion, BSC frame­work is driven by both com­pli­ance as well as busi­ness agenda, ad­dress­ing the needs of the reg­u­la­tor, dis­trib­u­tors and con­sumers alike. It is im­por­tant for com­pa­nies to see BSC be­yond merely com­pli­ance and view it also as busi­ness op­por­tu­ni­ties. A suc­cess­ful im­ple­men­ta­tion of the BSC frame­work is crit­i­cal to the long term suc­cess and sus­tain­abil­ity of the life in­surance and fam­ily Taka­ful com­pa­nies un­der the emerg­ing busi­ness land­scape.

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