communicating takaful

1

Communicating Takaful

Loke Chang Yueh, FIA, FASM Nicholas Yeo Chee Lek, FIA, FASM

Joint IACA, IAAHS and PBSS Colloquium in Hong Kong www.actuaries.org/HongKong2012/

Session Number: MBR9

2


AGENDA 1. BACKGROUND

2. TAKAFUL AND INSURANCE

3. TAKAFUL AND DONATION

4. TAKAFUL AND ISLAM

5. TAKAFUL TO PROVIDE GOODS

AND SERVICES


3


BACKGROUND


4

GENERAL PUBLIC



RISK MANAGEMENT

SOLUTION

RELIGION

HIGH PROPENSITY TO CONSUME

TAKAFUL

LOW PROPENSITY TO CONSUME

NON ADHERENTS

ADHERENTS

5


TAKAFUL AND INSURANCE


6

Communicating Takaful Insurance and Risk Transfer


FACED WITH RISK WILLING TO ACCEPT

RISK FOR PROFIT

INSURED INSURER

CLAIMS

PREMIUMS

BUY & SELL

7

Communicating Takaful Takaful and Risk Sharing


COME TOGETHER TO SHARE RISK

FACED WITH RISK FACED WITH RISK FACED WITH RISK

PARTICIPANT

PARTICIPANT

PARTICIPANT

8



HUNGRY SERVES FOOD FOR A PROFIT

SATIATED RESTAURANT

PAY

FOOD

BUY & SELL

9

COME TOGETHER TO SHARE FOOD



SATIATED

SATIATED

SATIATED

HUNGRY HUNGRY HUNGRY

10 Joint IACA, IAAHS and PBSS Colloquium in Hong Kong www.actuaries.org/HongKong2012/

INDIFFERENT DIFFERENT

HAVING A MEAL IN A RESTAURANT OR IN A POTLUCK

GATHERING

ACQUIRING AN ASSET VIA HIRE PURCHASE OR LOAN

USING INSURANCE OR TAKAFUL TO MANAGE RISK

MANAGING A RESTAURANT AND ORGANISING A POTLUCK

GATHERING ARE VERY DIFFERENT TASKS

FINANCIAL ACCOUNTING IMPLICATONS BETWEEN HIRE PURCHASE AND LOANS E.G.

BALANCE SHEET, TAX

ROLE OF AN ACTUARY IN INSURANCE AND IN TAKAFUL

Communicating Takaful Form VS Substance

11



PAYS PREMIUM OF 1

IF CLAIM HAPPENS

RECEIVES 100

IF NO CLAIM HAPPENS,

RECEIVES 0

1000 INSUREDS

TOTAL PREMIUMS 1000

INSURER INSURED

DEFINITE FINANCIAL OUTCOME

IF 5 CLAIM EVENTS,

PAY 500, SURPLUS 500

IF 20 CLAIM EVENTS,

PAYS 2000, DEFICIT 1000


CONTRIBUTES 1

IF CLAIM HAPPENS

RECEIVES 100

IF NO CLAIM HAPPENS,

RECEIVES 0

IF SURPLUS, RECEIVES REFUND

IF DEFICIT, CONTRIBUTES MORE

1000 PARTICIPANTS

TOTAL CONTRIBUTION 1000

PARTICIPANT

COME TOGETHER TO SHARE RISK

PARTICIPANT

PARTICIPANT

PARTICIPANT


VARIABLE FINANCIAL OUTCOME

IF 5 CLAIM EVENTS,

PAY 500, SURPLUS 500

IF 20 CLAIM EVENTS,

PAY 2000, DEFICIT 1000


BUT:

• ARE CONSUMERS ALWAYS SEEKING TO HELP EACH OTHER?

• DO CONSUMERS FACE FINANCIAL CONSTRAINTS?

• DO CONSUMERS UNDERSTAND HOW TAKAFUL RELATES TO HELPING EACH OTHER?

Communicating Takaful Which is The Better Product?

NOT POSSIBLE TO DISTINGUISH AT OUTSET WHETHER TAKAFUL OR INSURANCE RESULTS IN HIGHER EVENTUAL FINANCIAL VALUE.

TAKAFUL AND INSURANCE ARE NOT DIRECT, PERFECT SUBSTITUTES.

IT CAN BE ARGUED THAT, CETERIS PARIBUS, TAKAFUL IS BETTER DUE TO UNDERLYING ELEMENTS OF MUTUAL HELP WHICH IS BENEVOLENT IN NATURE.

THE SUITABILITY OF A FINANCIAL PRODUCT ULTIMATELY DEPENDS ON SPECIFIC FINANCIAL CIRCUMSTANCES.

14

Communicating Takaful Administration


PARTICIPANT

PARTICIPANT

PARTICIPANT

TAKAFUL COMPANY

15

-500

-250

0

250

500

750

1 2 3 4 5

YEAR

SUR

PLU

SCommunicating Takaful

Financial Backing


-500

0

500

1000

1500

2000

2500

1 2 3 4 5

YEAR

SUR

PLU

S

ACTUARIAL TECHNIQUES

EXTERNAL SUPPORT

TAKAFUL COMPANY

STRONGER TAKAFUL POOL

PARTICIPANT

PARTICIPANT

PARTICIPANT

16

Communicating Takaful Transparency and Fairness


INSURED

I AM A BENEFICIARY

PARTICIPANT

I AM A BENEFICIARY

OBJECTIVE OF TAKAFUL IS TO BENEFIT TOGETHER, NOT BENEFIT AT THE EXPENSE OF OTHERS

I AM A BENEFACTOR

CAN INSURER PAY MY

CLAIMS?

IS TAKAFUL POOL WELL MANAGED?

17

COMPLETE PRODUCT

Communicating Takaful Takaful and Investments


RISK MANAGEMENT

PARTICIPANT

TAKAFUL WEALTH ACCUMULATION

INVESTMENTS

18

MUTUAL FUNDS DO NOT PROVIDE INVESTMENT GUARANTEES.

Communicating Takaful Takaful and Investments


0 t Protection over a period of time

Period

X X * (1 + i)t Investment return over a period of time

CURRENT TAKAFUL OFFERINGS DO NOT OFFER INVESTMENT GUARANTEES

IS THIS A WEAKNESS?

SHOULD TAKAFUL SUPPLY INVESTMENT GUARANTEES?

CURRENT LIFE INSURANCE OFFERINGS RANGE FROM WITHOUT PROFITS (FULL INVESTMENT GUARANTEE),

WITH PROFITS (PARTIAL INVESTMENT GUARANTEE) TO UNIT LINKED (NO INVESTMENT GUARANTEE).

19


TAKAFUL AND DONATION


20

Communicating Takaful Takaful and Donation


TAKAFUL CHARITABLE DONATION

COME TOGETHER TO HELP EACH OTHER WHEN FACED

WITH RISK

QUID PRO QUO

PARTICIPATE IN MORTGAGE REDUCING TERM TAKAFUL

ONE PARTY GIVES TO ANOTHER PARTY IN NEED

UNCONDITIONAL

DONATION TO HOMELESS TO PROVIDE SHELTER

TAKAFUL IS DIFFERENT FROM CHARITABLE DONATION

21


TAKAFUL AND ISLAM


22

Communicating Takaful Takaful and Islam


EDUCATION

RELIGION DISMISS

APPRECIATE

MADRASAH

GENERAL PUBLIC


BUT TAKAFUL PARTICIPANTS ARE ONLY BOUND BY FINANCIAL OBLIGATIONS AND NOT RELIGIOUS OBLIGATIONS.


MALAYSIAN GOVERNMENT SET UP A TASK FORCE TO STUDY THE FEASIBILITY OF TAKAFUL IN 1981. SYARIKAT TAKAFUL MALAYSIA ESTABLISHED IN 1984, FOLLOWING THE INTRODUCTION OF TAKAFUL ACT.

ISLAMIC FIQH ACADEMY WITHIN OIC IN 1985 CONCLUDED THAT RISK TRANSFER IS NOT IN LINE IN ISLAMIC BUSINESS PRINCIPLES AND PRACTICES.

ELEMENTS OF TAKAFUL NOTICEABLE OUTSIDE THE ISLAMIC WORLD:

• FARMERS INSURANCE GROUP IN UNITED STATES WHERE MANAGEMENT COMPANY DOES NOT PARTICIPATE IN UNDERWRITING RISK

• NEIGHBOURHOOD WATCH IN UK OR RUKUN TETANGGA IN MALAYSIA WHERE A GROUP OF PEOPLE COME TOGETHER TO HELP EACH OTHER WHEN FACED WITH PERSONAL SECURITY RISK

24



TAKAFUL TZU CHI FOUNDATION

ISLAMIC ORIGIN

HELPING EACH OTHER WHEN FACED WITH RISK

REGARDLESS OF PERSONAL RELIGIOUS BELIEFS

BUDDHIST ORIGIN

HELPING PEOPLE IN NEED

REGARDLESS OF PERSONAL RELIGIOUS BELIEFS

CONCEPT ENCOURAGED IN ISLAM

CONCEPT ENCOURAGED IN BUDDHISM

25


TAKAFUL TO PROVIDE GOODS AND SERVICES


26

Communicating Takaful Takaful to Provide Goods and Services


FACED WITH RISK FACED WITH RISK FACED WITH RISK

PARTICIPANT

PARTICIPANT

PARTICIPANT

TAKAFUL COMPANY

27

Communicating Takaful Conclusion


Takaful is a effective risk management and not all about religion

communicating takaful

Documents