Interview: Hans de Cuyper
How do you expect the Islamic insurance market’s landscape to change following the introduction of a risk-based capital framework in 2012?
HANS DE CUYPER: The key question following the implementation of the new framework within the next three years will be how the takaful (Islamic insurance) industry will position itself against the conventional insurance sector. In recent years, profitability in takaful has been slightly lower than that of conventional insurance which is driven partly by lower capital requirements. Pricing of takaful products will certainly be affected by the introduction of risk-based capital (RBC), as companies will feel increased pressure to drive profitability and create reasonable returns for shareholders. This may prompt the industry to use different strategies for selling takaful. In the current scenario, takaful pricing is relatively comparable to conventional insurance, with the sharing mechanism coming in as an extra. With a move to comparable capital requirements for takaful, products may become more expensive than conventional insurance as firms look to sustain the same level of return for shareholders. Insurers will have to learn to sell the sharing as opposed to purely selling the price. At this point, there is still a lot of studying, simulation and testing to be done before rollout. Overall, Malaysia’s takaful operating framework remains ahead of the rest of the world. The challenge is the exportability of the technical principles and Islamic concepts.
What do you think can be done to promote the emergence of takaful as an alternative to conventional insurance in the medium term?
DE CUYPER: Takaful has taken off very well in the mass market to date. The main challenge going forward is positioning it towards the middle- and upper-income brackets. This segment of the market is still very much driven by conventional insurance and controlled by foreign insurers. The question is whether local insurers can innovate distribution and branding in a way that allows them to compete. Furthermore, the market will first need some time to digest the new takaful operating framework from a technical standpoint What factors are currently posing obstacles to improving technical capability and enhancing talent in the local financial industry?
DE CUYPER: The war for talent amongst insurers and the need to attract international expertise is one of the biggest issues facing the industry today. Insurers need capital and to build up professionalism of industry, but first and foremost they need people to implement this.
Intensive internal development programmes are under way to bring local management teams up to international standards. The insourcing of talent has become one of Bank Negara Malaysia’s major focal points.
Recruiting, interviewing and developing talent is one of the most time-consuming operational activities for insurance companies in Malaysia.
In what ways do you expect new wealth management licences to affect Malaysia’s private pension industry in the medium term?
DE CUYPER: The first phase of reform will be to focus just on the asset management licences, which is a good start and will be a strong addition to the existing activities of the Employee Provident Fund. However, moving forward it is our hope that regulators begin to view the takaful industry as a broader operator in this segment. With insurers already handling medical coverage and group term-life, there is no one better placed to take on retirement benefits administration as well.
We see a variety of already existing takaful and life products that could incorporate retirement aspects and offer attractive tax incentives. This is something we would like to see the authorities pay more heed to as it would help significantly in building insurance assets under management. All in all, we hope the pension reform is an early sign of a retirement savings industry managed by private companies that will in time grow into a significant driver of the local economy.
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