Because of market developments and increasing competition which has led to product innovation and diversity, the Prudential Financial Policy Department of Bank Negara Malaysia has reviewed the regulatory framework for insurance and Takaful products "to further enhance consumer protection while according greater flexibility for insurers and Takaful operators to respond to changing market conditions, both in managing risks and enhancing their competitiveness".
In fact, the department in late September 2010 published "Guidelines on the Introduction of New Products for Insurance Companies and Takaful Operators" under the Insurance Act 1996 and the Takaful Act 1984.
The guidelines, stressed Bank Negara, which is also the insurance and Takaful regulator in Malaysia, aim to improve the time-to-market for insurance companies and Takaful operators to introduce new products; to promote sound risk management practices in managing and controlling product risk; and to further strengthen the duty of care owed to consumers in ensuring that products developed and marketed are appropriate to the needs, resources and financial capability of targeted consumer segments.
Under the new guidelines, prior to introducing a new product, the insurance company or Takaful operator must have the capacity (including financial resources) to adequately manage and control the risks associated with the product; must adhere to principles relating to the fair treatment of consumers; must not knowingly offer a product that has been prohibited in other countries and which could potentially give rise to public concerns; and must make sure that the product must comply with all necessary regulatory and other approvals required for its offer.
Subject to the above, the insurance company or Takaful operator can then offer a new product to customers upon submission of all required information on a "launch-and-file" basis. However, the "launch-and-file" system is not applicable to insurance and Takaful products that are being introduced in the Malaysian market for the first time, including new products within an existing product line that contain innovative features being introduced in the market for the first time; annuity certain and life/family annuity products; general and family Takaful products that involve new Shariah contract(s), changes in the Shariah contract for existing products, for example, from mudarabah to a wakalah contract, or the creation of new sub-funds for existing products; and investment-linked products invested in financial derivatives for purposes other than hedging of existing exposures.
The guidelines emphasize the importance of product risk management with inbuilt measures for ongoing monitoring and control of such risks. "The policies and procedures," according to the guidelines, "should be designed to identify and control product risk across the value chain, including the stages of product development, authorization, pricing, marketing, sale, distribution, portfolio management, accounting and ongoing service and maintenance. It is also important that the management of product risks is well integrated within the insurance company and Takaful operator's overall governance framework and risk management system. This is to ensure that product innovation is carried out in a manner that is aligned with the insurance company or Takaful operator's business objectives, and consistent with its capability and capacity to manage associated risks."
Similarly, for Takaful products, operators should ensure that effective Shariah compliance review processes are in place during the pre-and-post-launch stages of a new product offering in line with the "Guidelines on the Governance of Shariah Committee for Islamic Financial Institutions" issued by BNM. Shariah compliance should be monitored on an ongoing and effective basis.
The guidelines also gives greater clarity on protecting the interests of consumers especially against mis-selling of products. The board of insurance companies and Takaful operators are required to approve policies and procedures that "describe the appropriate parameters and guidance for the fair treatment of consumers which should serve to avoid the potential for mis-selling, terms and conditions that are inherently unfair to consumers, and business practices that restrict the freedom of choice to consumers."
At the same time, insurance companies and Takaful operators are also required to market products, especially those with investments and savings components, only to suitable customers, who understand the features and the risks associated with the products, and which meet the customer's investment objectives, horizon and appetite for risk.
Those insurance companies and Takaful operators that fail to meet the conditions and requirements under these guidelines, or to satisfactorily manage there product risks and responsibilities to consumers, are faced with a motley of supervisory sanctions which may involve subjecting any new products to the prior review or specific approval of the Bank before launch; the recall of any product offered; compensation to consumers that have suffered losses; the modification of the terms and conditions of any product offered, including any excessive or unreasonable fees and charges imposed; the imposition of additional capital charges to provide for additional risks that are not satisfactorily managed by the institution; and the publication of details of corrective actions taken against the insurance company or Takaful operator.
Malaysian Takaful industry has seen impressive growth over the last five years although compared with the conventional sector it still lags far behind in terms of total insurance market penetration and share. Takaful Fund Assets, according to the latest figures from Bank Negara Malaysia, comprise only 8 percent of the total assets of the Malaysian insurance and Takaful industry. This figure is up from 5.7 percent in 2005 and 7.5 percent in 2008.
Total Takaful funds, however, have more than doubled in this same period from RM5,878.4 million in 2005 to RM10,569.4 million in 2008 and RM12,445.4 million in 2009. Similarly, Takaful net contributions income has increased from RM1,333.7 million in 2005 to RM3,025.1 million in 2008 to RM3,521.8 million in 2009.
Source : http://arabnews.com/economy/islamicfinance/article153292.ece - Oct 3, 2010
The guidelines, stressed Bank Negara, which is also the insurance and Takaful regulator in Malaysia, aim to improve the time-to-market for insurance companies and Takaful operators to introduce new products; to promote sound risk management practices in managing and controlling product risk; and to further strengthen the duty of care owed to consumers in ensuring that products developed and marketed are appropriate to the needs, resources and financial capability of targeted consumer segments.
Under the new guidelines, prior to introducing a new product, the insurance company or Takaful operator must have the capacity (including financial resources) to adequately manage and control the risks associated with the product; must adhere to principles relating to the fair treatment of consumers; must not knowingly offer a product that has been prohibited in other countries and which could potentially give rise to public concerns; and must make sure that the product must comply with all necessary regulatory and other approvals required for its offer.
Subject to the above, the insurance company or Takaful operator can then offer a new product to customers upon submission of all required information on a "launch-and-file" basis. However, the "launch-and-file" system is not applicable to insurance and Takaful products that are being introduced in the Malaysian market for the first time, including new products within an existing product line that contain innovative features being introduced in the market for the first time; annuity certain and life/family annuity products; general and family Takaful products that involve new Shariah contract(s), changes in the Shariah contract for existing products, for example, from mudarabah to a wakalah contract, or the creation of new sub-funds for existing products; and investment-linked products invested in financial derivatives for purposes other than hedging of existing exposures.
The guidelines emphasize the importance of product risk management with inbuilt measures for ongoing monitoring and control of such risks. "The policies and procedures," according to the guidelines, "should be designed to identify and control product risk across the value chain, including the stages of product development, authorization, pricing, marketing, sale, distribution, portfolio management, accounting and ongoing service and maintenance. It is also important that the management of product risks is well integrated within the insurance company and Takaful operator's overall governance framework and risk management system. This is to ensure that product innovation is carried out in a manner that is aligned with the insurance company or Takaful operator's business objectives, and consistent with its capability and capacity to manage associated risks."
Similarly, for Takaful products, operators should ensure that effective Shariah compliance review processes are in place during the pre-and-post-launch stages of a new product offering in line with the "Guidelines on the Governance of Shariah Committee for Islamic Financial Institutions" issued by BNM. Shariah compliance should be monitored on an ongoing and effective basis.
The guidelines also gives greater clarity on protecting the interests of consumers especially against mis-selling of products. The board of insurance companies and Takaful operators are required to approve policies and procedures that "describe the appropriate parameters and guidance for the fair treatment of consumers which should serve to avoid the potential for mis-selling, terms and conditions that are inherently unfair to consumers, and business practices that restrict the freedom of choice to consumers."
At the same time, insurance companies and Takaful operators are also required to market products, especially those with investments and savings components, only to suitable customers, who understand the features and the risks associated with the products, and which meet the customer's investment objectives, horizon and appetite for risk.
Those insurance companies and Takaful operators that fail to meet the conditions and requirements under these guidelines, or to satisfactorily manage there product risks and responsibilities to consumers, are faced with a motley of supervisory sanctions which may involve subjecting any new products to the prior review or specific approval of the Bank before launch; the recall of any product offered; compensation to consumers that have suffered losses; the modification of the terms and conditions of any product offered, including any excessive or unreasonable fees and charges imposed; the imposition of additional capital charges to provide for additional risks that are not satisfactorily managed by the institution; and the publication of details of corrective actions taken against the insurance company or Takaful operator.
Malaysian Takaful industry has seen impressive growth over the last five years although compared with the conventional sector it still lags far behind in terms of total insurance market penetration and share. Takaful Fund Assets, according to the latest figures from Bank Negara Malaysia, comprise only 8 percent of the total assets of the Malaysian insurance and Takaful industry. This figure is up from 5.7 percent in 2005 and 7.5 percent in 2008.
Total Takaful funds, however, have more than doubled in this same period from RM5,878.4 million in 2005 to RM10,569.4 million in 2008 and RM12,445.4 million in 2009. Similarly, Takaful net contributions income has increased from RM1,333.7 million in 2005 to RM3,025.1 million in 2008 to RM3,521.8 million in 2009.
Source : http://arabnews.com/economy/islamicfinance/article153292.ece - Oct 3, 2010
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