Regulatory Updates (Quarter 1 2018)

  1. The guideline for a phased liberisation of fire and motor tariffs were introduced in July 2016 with the various features phased in from July 2016 till December 2018. In July 2017 the pricing for comprehensive motor products were liberalized, but from a practical point of view changes in rates from tariff have not been more than 10%. Third party motor products as well as fire tariffs have remained. From 2019 there may be further liberalization depending on the level of readiness of the public as well as the industry. With only small changes in rates thus far Takaful operators have not been significantly affected. It was expected that under heavy competition Takaful would struggle to compete as surplus sharing will no longer be as key a selling point as currently. Read the guideline here.
  2. Financial conditions reports (FCR) are now required for general insurers and general takaful operators starting in 2017. This had already been started by some of the larger insurers, but for many this was the first time. Read the guideline here.
  3. The life insurance and family takaful framework was introduced in November 2015 and implemented in stages. The goal of this framework is to increase insurance penetration in Malaysia. From 2017 there will no longer be limits to commission rates for protection products, conditional on the product being offered directly (online) with no commissions payable. Also from 2017 commission limits for banca distribution has been aligned to that of the agency force. From 2019 there will be a set of minimum allocation rates for unit linked plans which is generally higher than the current allocation rates. At the same time commission rates will no longer be restricted, so it is up to each insurer and takaful operator to set accordingly. These minimum allocation rates have been a particular challenge for Takaful. The capital requirements for Takaful are extremely similar to that of conventional insurance but 50% of surplus is shared with participants. Thus with the same allocation rates as conventional insurance shareholders return on capital is expected to be lower for Takaful than conventional insurance. One strategy to mitigate the effect of the minimum allocation rates for conventional insurance is the use of financial reinsurance, but for Takaful this has proven difficult to implement. Read the guideline here.
  4. Direct distribution channels for pure protection products, a requirement to sell pure protection products online, came inforce in July 2017. As of July 2017 every insurer (and Takaful operator) must offer pure term protection products online or directly from the insurer (operator) and as of July 2018 pure critical illness and medical products must be offered. These products must not include a loading for commissions, which implied that such products be affordable for the public. In order to assist the public in purchasing these types of plans the insurer must make tools available such as a needs analysis calculator and a financial budget calculator. The pure term product must be offered at least to ages 21 – 45 with a maximum sum assured of RM200k as of July 2017 and RM500k as of January 2018. Details of the critical illness and medical products to be offered online are not yet available. Read the guideline here.
  5. An exposure draft guideline on operating cost controls was announced in October 2017 relating to commission levels and finalized 22 December 2017. This is in relation to the above guidelines but between the draft and finalized guidelines some changes were made which challenged some insurers from an operational point of view. This guideline introduces the idea of a balanced score card for agents, and rewarding strong agents with additional commissions. KPIs are set such as completion rate of CFF form, first and second year persistency rates, number of substantiated complaints, CPD hours and amount of business sold. Read the guideline here.
  6. A guideline on corporate governance was introduced in August 2016 and gradually implemented from 2019 till 2021. This includes aspects such as requiring a majority of the board of directors to be independent. Read the guideline here.
  7. There were some adjustments to the Risk Based Capital (RBC) for conventional insurance and Takaful, mainly wordings changing rather than the calculations themselves. Read the guideline here.
  8. Internal Capital Adequacy Assessment process (ICAAP) came inforce for Takaful in 2017, though before this date Takaful operators generally followed the conventional insurance equivalent which started in 2012. Read the guideline here.
  9. The guideline for appointed actuary: appointment and duties was issued in April 2014 but the requirement for the appointed actuary to not have the responsibility for product pricing only officially took effect in 2017.The appointed actuary however remains involved in the product development process through highlighting the risks involved in a product design, issues relating to consistency with other products, appropriateness and consistency of assumptions used and the methodology used in developing premiums. Note that a corresponding requirement for a pricing actuary was not defined, though in many insurers and operators a qualified actuary has taken on this role. Read the guideline here.
  10. The guideline on management of participating life business was introduced in July 2015 but the revised sales illustration format came inforce January 2017. Read the guideline here.
  11. A guideline on management of customer information came out in October 2017 which detailed the steps which should be taken to safeguard customer data. Read the guideline here.

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