Operational and Actuarial Operational and Actuarial Aspects of TakafulAspects of Takaful

Topic 8Topic 8Product Distribution and Product Distribution and

ServicingServicing

Sub TopicsSub Topics IntroductionIntroduction Types of Distribution ChannelsTypes of Distribution Channels Shariah Issues related to DistributionShariah Issues related to Distribution Development of Marketing StrategyDevelopment of Marketing Strategy Compensation StructuresCompensation Structures Intermediary ManagementIntermediary Management Customer ServicesCustomer Services

IntroductionIntroduction Product distribution and servicing plays a Product distribution and servicing plays a

vital part in the success of any insurance vital part in the success of any insurance or takaful operators or takaful operators

Takaful operators may have the following Takaful operators may have the following distribution channels : distribution channels :

1.1. Agency system;Agency system;2.2. Bankatakaful system;Bankatakaful system;3.3. Broking system; Broking system; 4.4. Direct marketing system; and Direct marketing system; and 5.5. E-channel/internet system E-channel/internet system

The AgencyThe Agency Many takaful companies use agents for Many takaful companies use agents for

marketing Family takaful rather than marketing Family takaful rather than General takaful productsGeneral takaful products

In Family takaful one Principal approachIn Family takaful one Principal approach In General takaful max is two principals In General takaful max is two principals Mainly commission basedMainly commission based In Malaysia max is 3 tiers (hierarchy)In Malaysia max is 3 tiers (hierarchy) Most effective for the retail marketMost effective for the retail market

BankatakafulBankatakaful An adaptation of the bancassurance An adaptation of the bancassurance

concept as a result of the merger between concept as a result of the merger between banking and insurance services – one stop banking and insurance services – one stop centercenter

Emerged in the 80’s in EuropeEmerged in the 80’s in Europe Tax drivenTax driven Blurring of regulation between the 2 Blurring of regulation between the 2

industriesindustries Banks sees commissions as additional Banks sees commissions as additional

profits from existing clienteleprofits from existing clientele

BankatakafulBankatakaful Citigroup, HSBC, Credit Agricole are Citigroup, HSBC, Credit Agricole are

successful examplessuccessful examples Product bundling - particularly credit Product bundling - particularly credit

based typesbased types Very rapid expansion – in Malaysia Very rapid expansion – in Malaysia

about 30% of Premiums but mainly about 30% of Premiums but mainly single premiumsingle premium

BrokingBroking Mainly General TakafulMainly General Takaful In Malaysia additional license needed In Malaysia additional license needed

for Takaful Brokingfor Takaful Broking

OthersOthers Direct Marketing includes Direct Direct Marketing includes Direct

Mailing, Press Ads, Telephone Sales Mailing, Press Ads, Telephone Sales etc.etc.

Response level is low, hence profits Response level is low, hence profits are dependent on volumeare dependent on volume

Internet sales is new. E.g. Takaful Internet sales is new. E.g. Takaful Ikhlas and Tune MoneyIkhlas and Tune Money

E- Biz success presently towards E- Biz success presently towards servicing than salesservicing than sales

Shariah IssuesShariah Issues Intermediaries can act on a wakalah contractIntermediaries can act on a wakalah contract Related from Busr bin Sa’id that Ibn Sa’di al Maliki Related from Busr bin Sa’id that Ibn Sa’di al Maliki

said, “Umar aksed me to collect zakat and after I said, “Umar aksed me to collect zakat and after I handed it over to him, he ordered that I be paid a handed it over to him, he ordered that I be paid a fee. I said, ‘I work for the sake of God.’ He fee. I said, ‘I work for the sake of God.’ He answered, ‘Take it. I used to work like you during answered, ‘Take it. I used to work like you during the Prophet’s time and he paid me a fee and I the Prophet’s time and he paid me a fee and I told him exactly what you said to me. Then he told him exactly what you said to me. Then he said to me, said to me, ‘When you are given something ‘When you are given something without asking, take it and give charity.’without asking, take it and give charity.’” ”

Imam Shaukani said, Imam Shaukani said, “The hadith of Busr bin Sa’id “The hadith of Busr bin Sa’id showed that a person doing something with the showed that a person doing something with the intention of tabarru’ (in this case as an agent) intention of tabarru’ (in this case as an agent) may receive a fee.”may receive a fee.”

Shariah IssuesShariah Issues Legal perspective -Who does the agent act Legal perspective -Who does the agent act

for?for? Brokers are not agent of the Operator!Brokers are not agent of the Operator! In the Malaysia the Act clearly indicates In the Malaysia the Act clearly indicates

that the agent is the agent of the operator.that the agent is the agent of the operator. Property in the possession of an agent is Property in the possession of an agent is

considered to be property deposited with considered to be property deposited with him for safe keeping. him for safe keeping.

Twisting or replacement of certificates is a Twisting or replacement of certificates is a major concernmajor concern

Shariah IssuesShariah Issues The hadith of the Prophet says, The hadith of the Prophet says, “Indeed “Indeed

the action is by intention and every action the action is by intention and every action will be rewarded with what is intended. will be rewarded with what is intended. Thus whoever migrates for the sake of Thus whoever migrates for the sake of God and His Messenger, his migration is God and His Messenger, his migration is for God and His Messenger, and whoever for God and His Messenger, and whoever migrates for the sake of this world and its migrates for the sake of this world and its content, or for a lady to marry, his content, or for a lady to marry, his migration is for what he migrated formigration is for what he migrated for.” .”

Shariah IssuesShariah Issues Shariah perspective on promotions and Shariah perspective on promotions and

advertising: The Quran says, advertising: The Quran says, “O ye who believe! “O ye who believe! Betray not Allah and His messenger, nor Betray not Allah and His messenger, nor knowingly betray your trusts.”knowingly betray your trusts.”

Issue on monopolistic practices and deception: Issue on monopolistic practices and deception: “Woe to Al-Mutaffifin. Those who, when they have “Woe to Al-Mutaffifin. Those who, when they have to receive by measure from men, demand full to receive by measure from men, demand full measure, And when they have to give by measure, And when they have to give by measure or weight to men, give less than due. Do measure or weight to men, give less than due. Do they not think they will be resurrected” (Al-they not think they will be resurrected” (Al-Mutaffifin, 83:1-4). Mutaffifin, 83:1-4).

Shariah IssuesShariah Issues Can a takaful intermediary market conventional Can a takaful intermediary market conventional

products as well?products as well?

• “ “ ..Allah (s.w.t) permitted trade while prohibited Riba.” ..Allah (s.w.t) permitted trade while prohibited Riba.” (Al-Baqarah 2:275)(Al-Baqarah 2:275)

• ““Help you one another in righteousness and piety; but Help you one another in righteousness and piety; but not in sin and transgression…” (Al-Maidah, 5:2not in sin and transgression…” (Al-Maidah, 5:2))

• Allah has explicitly forbidden all business transactions Allah has explicitly forbidden all business transactions including injustice in any form to any of the parties, including injustice in any form to any of the parties, whether in the form of deceit or fraud or undue whether in the form of deceit or fraud or undue advantage or peril leading to uncertainty in the business advantage or peril leading to uncertainty in the business or any dealing. (Al An’am, 6:151-152).or any dealing. (Al An’am, 6:151-152).

This is practiced in other countriesThis is practiced in other countries

Developing Marketing StrategyDeveloping Marketing Strategy 7 P’s:7 P’s:1.1. ProductProduct2.2. PositioningPositioning3.3. PlacePlace4.4. PricePrice5.5. PromotionPromotion6.6. PackagingPackaging7.7. ProcessProcess

3 P’s3 P’s1.1. ProductProduct2.2. Place (market)Place (market)3.3. People People

(distribution)(distribution)

Examples in Marketing StrategyExamples in Marketing Strategy Agency/Brokers – ease of communication Agency/Brokers – ease of communication

to prospects, niche marketto prospects, niche market Direct Marketing – simple products (no Direct Marketing – simple products (no

explanation needed), mass target market, explanation needed), mass target market, ease of processingease of processing

Bankatakaful – Target segmentation, Bankatakaful – Target segmentation, product bundling, clean skin underwriting, product bundling, clean skin underwriting, competitive pricingcompetitive pricing

E Biz – Self service customers, no E Biz – Self service customers, no downtime on processing, self explanatory downtime on processing, self explanatory products, cheapest pricesproducts, cheapest prices

Compensation StructuresCompensation Structures BasisBasis

• Operator’s ModelOperator’s Model• ProductsProducts• Regular v Single ContributionRegular v Single Contribution• Different ChannelsDifferent Channels• RegulationRegulation

Very transparent; life insurance do Very transparent; life insurance do not disclose commissions.not disclose commissions.

Intermediary ManagementIntermediary Management Recruitment ProcessRecruitment Process Training ProcessTraining Process Leadership Development Leadership Development Biz Monitoring and DevelopmentBiz Monitoring and Development

RecruitmentRecruitment Muslims only?Muslims only? Bumis in conventional biz is small in Bumis in conventional biz is small in

number.number. Bumis are not enthused to sales jobsBumis are not enthused to sales jobs Full time v Part time sales peopleFull time v Part time sales people High current unemployment can be High current unemployment can be

an opportunityan opportunity

TrainingTraining Takaful Basic Exams (TBE) to be Takaful Basic Exams (TBE) to be

introducedintroduced Passing the Basic Agency Mgt Course and Passing the Basic Agency Mgt Course and

Agency Mgt Training courses are Agency Mgt Training courses are requirements for promotionrequirements for promotion

A Shariah Financial Planning course is a A Shariah Financial Planning course is a must towards professionalism must towards professionalism enhancement enhancement

CPD hours requirements to be in placedCPD hours requirements to be in placed

Customer ServicesCustomer Services Criticism that Takaful operators lacks Criticism that Takaful operators lacks

proper service standards.proper service standards. Shariah based companies should have Shariah based companies should have

higher standards than conventionals – higher standards than conventionals – Hadith; “Love others as you love yourself Hadith; “Love others as you love yourself then would you be a man of faith”then would you be a man of faith”

Good customer service help retains Good customer service help retains customer and can also be the company customer and can also be the company ‘unique selling proposition’ ‘unique selling proposition’

EndEnd

Thank youThank you