Earlier this year, the regulators in Malaysia issued new revised guidelines on operating costs of family takaful business and conventional life insurance business.
For family takaful business, the revised guidelines are now applicable to all family takaful operators, regardless of whether the operating costs are charged to the takaful funds or otherwise. As a result, all family takaful operators are now required to observe the limitations on agency compensation (e.g. Agency-Related Expenses or ARE) and management expenses as outlined in the guidelines.
It can be argued that the guidelines on limiting agency commissions and management expenses is relevant for companies where these expenses are charged to the insurance fund or takaful fund, as the guidelines will prevent the erosion of such funds and protect the policyholders benefit expectations. If expenses are fully borne by shareholders there is an argument on whether such guidelines are necessary. The constraint on expenses may indirectly limit the growth of new start-ups and new takaful operators, and in certain cases, may result in agents preferring to sell conventional products as opposed to takaful products.
To highlight the issues above for industry discussion purposes, Actuarial Partners have written an article summarising:
The article is available here.