1. Operational and Actuarial Aspects of Takaful Topic 8 Product Distribution and Servicing

2. Sub Topics Introduction Introduction Types of Distribution Channels Types of Distribution Channels Shariah Issues related to Distribution Shariah Issues related to Distribution Development of Marketing Strategy Development of Marketing Strategy Compensation Structures Compensation Structures Intermediary Management Intermediary Management Customer Services Customer Services

3. Introduction Product distribution and servicing plays a vital part in the success of any insurance or takaful operators Product distribution and servicing plays a vital part in the success of any insurance or takaful operators Takaful operators may have the following distribution channels : Takaful operators may have the following distribution channels : 1. Agency system; 2. Bankatakaful system; 3. Broking system; 4. Direct marketing system; and 5. E-channel/internet system

4. The Agency Many takaful companies use agents for marketing Family takaful rather than General takaful products Many takaful companies use agents for marketing Family takaful rather than General takaful products In Family takaful one Principal approach In Family takaful one Principal approach In General takaful max is two principals In General takaful max is two principals Mainly commission based Mainly commission based In Malaysia max is 3 tiers (hierarchy) In Malaysia max is 3 tiers (hierarchy) Most effective for the retail market Most effective for the retail market

5. Bankatakaful An adaptation of the bancassurance concept as a result of the merger between banking and insurance services – one stop center An adaptation of the bancassurance concept as a result of the merger between banking and insurance services – one stop center Emerged in the 80’s in Europe Emerged in the 80’s in Europe Tax driven Tax driven Blurring of regulation between the 2 industries Blurring of regulation between the 2 industries Banks sees commissions as additional profits from existing clientele Banks sees commissions as additional profits from existing clientele

6. Bankatakaful Citigroup, HSBC, Credit Agricole are successful examples Citigroup, HSBC, Credit Agricole are successful examples Product bundling - particularly credit based types Product bundling - particularly credit based types Very rapid expansion – in Malaysia about 30% of Premiums but mainly single premium Very rapid expansion – in Malaysia about 30% of Premiums but mainly single premium

7. Broking Mainly General Takaful Mainly General Takaful In Malaysia additional license needed for Takaful Broking In Malaysia additional license needed for Takaful Broking

8. Others Direct Marketing includes Direct Mailing, Press Ads, Telephone Sales etc. Direct Marketing includes Direct Mailing, Press Ads, Telephone Sales etc. Response level is low, hence profits are dependent on volume Response level is low, hence profits are dependent on volume Internet sales is new. E.g. Takaful Ikhlas and Tune Money Internet sales is new. E.g. Takaful Ikhlas and Tune Money E- Biz success presently towards servicing than sales E- Biz success presently towards servicing than sales

9. Shariah Issues Intermediaries can act on a wakalah contract Intermediaries can act on a wakalah contract Related from Busr bin Sa’id that Ibn Sa’di al Maliki said, “Umar aksed me to collect zakat and after I handed it over to him, he ordered that I be paid a fee. I said, ‘I work for the sake of God.’ He answered, ‘Take it. I used to work like you during the Prophet’s time and he paid me a fee and I told him exactly what you said to me. Then he said to me, ‘When you are given something without asking, take it and give charity.’” Related from Busr bin Sa’id that Ibn Sa’di al Maliki said, “Umar aksed me to collect zakat and after I handed it over to him, he ordered that I be paid a fee. I said, ‘I work for the sake of God.’ He answered, ‘Take it. I used to work like you during the Prophet’s time and he paid me a fee and I told him exactly what you said to me. Then he said to me, ‘When you are given something without asking, take it and give charity.’” Imam Shaukani said, “The hadith of Busr bin Sa’id showed that a person doing something with the intention of tabarru’ (in this case as an agent) may receive a fee.” Imam Shaukani said, “The hadith of Busr bin Sa’id showed that a person doing something with the intention of tabarru’ (in this case as an agent) may receive a fee.”

10. Shariah Issues Legal perspective -Who does the agent act for? Legal perspective -Who does the agent act for? Brokers are not agent of the Operator! Brokers are not agent of the Operator! In the Malaysia the Act clearly indicates that the agent is the agent of the operator. In the Malaysia the Act clearly indicates that the agent is the agent of the operator. Property in the possession of an agent is considered to be property deposited with him for safe keeping. Property in the possession of an agent is considered to be property deposited with him for safe keeping. Twisting or replacement of certificates is a major concern Twisting or replacement of certificates is a major concern

11. Shariah Issues The hadith of the Prophet says, “Indeed the action is by intention and every action will be rewarded with what is intended. Thus whoever migrates for the sake of God and His Messenger, his migration is for God and His Messenger, and whoever migrates for the sake of this world and its content, or for a lady to marry, his migration is for what he migrated for.” The hadith of the Prophet says, “Indeed the action is by intention and every action will be rewarded with what is intended. Thus whoever migrates for the sake of God and His Messenger, his migration is for God and His Messenger, and whoever migrates for the sake of this world and its content, or for a lady to marry, his migration is for what he migrated for.”

12. Shariah Issues Shariah perspective on promotions and advertising: The Quran says, “O ye who believe! Betray not Allah and His messenger, nor knowingly betray your trusts.” Shariah perspective on promotions and advertising: The Quran says, “O ye who believe! Betray not Allah and His messenger, nor knowingly betray your trusts.” Issue on monopolistic practices and deception: “Woe to Al-Mutaffifin. Those who, when they have to receive by measure from men, demand full measure, And when they have to give by measure or weight to men, give less than due. Do they not think they will be resurrected” (Al- Mutaffifin, 83:1-4). Issue on monopolistic practices and deception: “Woe to Al-Mutaffifin. Those who, when they have to receive by measure from men, demand full measure, And when they have to give by measure or weight to men, give less than due. Do they not think they will be resurrected” (Al- Mutaffifin, 83:1-4).

13. Shariah Issues Can a takaful intermediary market conventional products as well? Can a takaful intermediary market conventional products as well? “..Allah (s.w.t) permitted trade while prohibited Riba.” (Al-Baqarah 2:275)“..Allah (s.w.t) permitted trade while prohibited Riba.” (Al-Baqarah 2:275) “Help you one another in righteousness and piety; but not in sin and transgression…” (Al-Maidah, 5:2)“Help you one another in righteousness and piety; but not in sin and transgression…” (Al-Maidah, 5:2) Allah has explicitly forbidden all business transactions including injustice in any form to any of the parties, whether in the form of deceit or fraud or undue advantage or peril leading to uncertainty in the business or any dealing. (Al An’am, 6:151-152).Allah has explicitly forbidden all business transactions including injustice in any form to any of the parties, whether in the form of deceit or fraud or undue advantage or peril leading to uncertainty in the business or any dealing. (Al An’am, 6:151-152). This is practiced in other countries This is practiced in other countries

14. Developing Marketing Strategy 7 P’s: 7 P’s: 1. Product 2. Positioning 3. Place 4. Price 5. Promotion 6. Packaging 7. Process 3 P’s 3 P’s 1. Product 2. Place (market) 3. People (distribution)

15. Examples in Marketing Strategy Agency/Brokers – ease of communication to prospects, niche market Agency/Brokers – ease of communication to prospects, niche market Direct Marketing – simple products (no explanation needed), mass target market, ease of processing Direct Marketing – simple products (no explanation needed), mass target market, ease of processing Bankatakaful – Target segmentation, product bundling, clean skin underwriting, competitive pricing Bankatakaful – Target segmentation, product bundling, clean skin underwriting, competitive pricing E Biz – Self service customers, no downtime on processing, self explanatory products, cheapest prices E Biz – Self service customers, no downtime on processing, self explanatory products, cheapest prices

16. Compensation Structures Basis Basis Operator’s ModelOperator’s Model ProductsProducts Regular v Single ContributionRegular v Single Contribution Different ChannelsDifferent Channels RegulationRegulation Very transparent; life insurance do not disclose commissions. Very transparent; life insurance do not disclose commissions.

17. Intermediary Management Recruitment Process Recruitment Process Training Process Training Process Leadership Development Leadership Development Biz Monitoring and Development Biz Monitoring and Development

18. Recruitment Muslims only? Muslims only? Bumis in conventional biz is small in number. Bumis in conventional biz is small in number. Bumis are not enthused to sales jobs Bumis are not enthused to sales jobs Full time v Part time sales people Full time v Part time sales people High current unemployment can be an opportunity High current unemployment can be an opportunity

19. Training Takaful Basic Exams (TBE) to be introduced Takaful Basic Exams (TBE) to be introduced Passing the Basic Agency Mgt Course and Agency Mgt Training courses are requirements for promotion Passing the Basic Agency Mgt Course and Agency Mgt Training courses are requirements for promotion A Shariah Financial Planning course is a must towards professionalism enhancement A Shariah Financial Planning course is a must towards professionalism enhancement CPD hours requirements to be in placed CPD hours requirements to be in placed

20. Customer Services Criticism that Takaful operators lacks proper service standards. Criticism that Takaful operators lacks proper service standards. Shariah based companies should have higher standards than conventionals – Hadith; “Love others as you love yourself then would you be a man of faith” Shariah based companies should have higher standards than conventionals – Hadith; “Love others as you love yourself then would you be a man of faith” Good customer service help retains customer and can also be the company ‘unique selling proposition’ Good customer service help retains customer and can also be the company ‘unique selling proposition’

21. End Thank you