Insurance and Takaful Regulation

Viewed as a form of governmental consumer protection

They are the trustees of the policyholders premiums and have
to pay any loss that the policyholders may incur on the risks that
have been transferred.
Must be regulated and monitored by the government.
The Insurance Act 1996
If not
satisfied
Licensing
Solvency Requirement
Insurance Fund and Shareholders Funds
Insurance Pricing
Section 142 BNM determine the code of good practice with regard to actuarial
computation of premium rates.
Section 144 General insurer should not adopt a tariff of premium rates and
conditions for a description of general policy except with the prior written approval of
BNM.
Examination of Insurers
Requires all licensed insurers to submit an annual account that has been audited,
actuarial report and quarterly reports to BNM.
Bank Negara has power to elect representative to examine documents of an insurer.
BNM has power to examine director of the licensee or policy owner.
Self-regulation through Insurance Association
Objective:
1. To instill discipline and promote healthy competition in the industry
2. To provide some element of protection to insurance customers.

Insurance association:
1. General Insurance Association of Malaysia (PIAM)
2. Insurance Brokers Association of Malaysia (IBAM)
3. Association of Malaysian Loss Adjusters (AMLA)
4. Life Insurance Association of Malaysia (LIAM)
As a regulations relates to
takaful business operations.
Bank Negara entrusted to administer and
enforce provision to ensure orderly
growth of industry.
Section 68; MOF is authorized to make subsidiary
legislations to prescribe detail particulars pursuant to
requirement under the act.

Any company may apply to
become takaful operators.
Section 4(1)
Registered takaful operators required to
maintained a surplus of assets over liabilities
which is not less than RM5 million.
Section
4(2)(b)
Director general has authority to cancel the
registration of takaful operator.
Section 11
Registration of Takaful Operators
Shariah Framework
Shariah Advisory Council via Central Bank
of Malaysia Act 2009 is accorded sole
authority on matter pertaining to Islamic
banking and takaful business.
Section 53A(1); any parties involved in takaful
transaction namely a takaful operator, agent,
broker or adjuster may seek advice from SAC.
Operator required to establish
its own Shariah committee.
Malaysian
Takaful
Association
(MTA)
Section 4(2)(b); requires
takaful operators to become
member of MTA to carry
out takaful business.
Implement Inter-
Takaful Operator
Agreement (ITA)
among its
member.
Aims to improve
industry self-regulation
through uniformity in
market practice and
promoting higher level
of cooperation among
players in developing
takaful industry.
Takaful Fund
Section 16; requires
takaful operators to
establish takaful
fund in respect of
each class of
business.
For family takaful
business, takaful
benefits can only be paid
out of fund to the
participants with
approval of qualified
actuary.
All contributions
attributed to each
class of business
will paid into the
fund.
Statutory Asset Requirement
Section 17;
requires
takaful
operators to
maintain
at least 80 percent of each takaful
fund in authorized Malaysian assets
at least 15 percent of each takaful
fund in securities of federal or state
government issued in Malaysia.
Supervision
of Takaful
Operators
The Insurance Supervision
Department and Information
System Supervision unit of Bank
Negara Malaysia conduct off-site
surveillance and on-site
examination of insurance
companies and takaful operators
in regular basis.
Aim to support and promote
good and orderly development
of industry with respect to
soundness, solvency, integrity,
corporate governance and
professionalism.
Off-site surveillance focused on ability to
meet the prescribed requirement for
investment of takaful fund
On-site examination carried out to assess
their financial conduct.
Takaful
Guarantee
Scheme
Fund
(TGSF)
Section 46(1); Director General
may institute investigation into
whole or any part of takaful
business if there is any evidence
that operator is likely unable to
meet its obligation.
Section 8(7); Operator required to
make deposit for each class of
business before a license is granted
with minimum amount is
RM300,000.
The Act empowers Director
General to establish and maintain
TGSF in order to reduce risk of
takaful operator experiencing
insolvency.
The function is to
meet the liabilities
of any insolvent
operator.
Imposed on
licensed operator
including profit
or dividend from
investment.
THE INSURANS AND TAKAFUL MARKET
INSURANS MARKET
Refer to facilities for buying and selling insurance
Consists of insurance buyer, seller and intermediaries.

1) BUYER
Include individuals, business organization, association industries and public
enterprise
2) SELLER
Known as insurance company
Classified into different type according to products they sell, their license and
their legal form of ownership.
Divided into two classification:
a) Private insurers
o Life insurers- sell life insurance, sell personal accident and health insurance
o General insurers sell property and liability insurance
o Composite insurer- sell life and general insurance product


b) State insurers
o Social Securities Organisation (SOCSO) provide social securities protection to
workers , Employment injury insurance scheme, Invalidity pension scheme

3) REINSURANCE
Shifting part or all risk exposure covered by one insurer to another insurer.
There has emerged need to share the risk with other insurer.

4) INTERMEDIARIES
Many insurance sell to client through intermediaries
Consist of Bank, Agents and Brokers.
a) Agents- person who represents insurer
- before register with approved insurers association, required to
pass a pre-contract examination.
b) Brokers person who represent the clients
- find most suitable insurance for client at least premium cost.
- assist client to understand benefits insurance and claim.
- prepared document to insurer.
4) BANCASSURANCE
Collaboration banks and insurers to distribute insurance product to bank
customer.
Maybank is first bank that start bancassurance in Malaysia.
Todays, bancassurance predominant distribution channel for life insurance

TAKAFUL MARKET
one of the fastest-growing segment of local islamic financial market.
First takaful in Malaysia is Syarikat Takaful Malaysia Berhad incorporated
1984 and listed on Bursa Malaysia in July 1996.
Major shareholder is Bank Islam Malaysia Holdings
Takaful Malaysia is only takaful operator in MAS adopt pure mudharabah
Second takaful is MNI Takaful.
Takaful Ikhlas subsidiary of Malaysia National Reinsurance Holdings Bhd.
2005, Mayban Fortis acquire Malaysia National Insurance BHD and Takaful
Nasional Berhad.
Effact: rebranding company and new name Takaful group is Etiqa
RE-TAKAFUL OPERATION
Offer coverage for takaful companies against the risk, and loss of their
capital and their reserve.
Must be undertaken parallel to shariah priciple
Limitation insufficient number of re-takaful operators.
Only 3 re-takaful companies in Malaysia
1) MNRB Retakaful Berhad
2) Munich Re Retakaful
3) ACR Retakaful SEA Berhad.
CHANNEL OF DISTRIBUTION
To make efficient and cost effective and to reach a large segment of
population.
Consists of direct marketing, agents, brokers and bancatakaful
1) Direct marketing
Insurance or takaful product purchased by insured arranged by
representatives of the insurer or takaful operator
Representatives refer to employees that responsible for the promotion and
sales.
2) Agent and broker
In takaful agents will called wakil
Brokers are individuals who arranged and services takaful policies on behalf
of the insured
Brokers also representatives of the insured to make sure customer get best
takaful needs.
3) Bancatakaful
Delivery bankable protection, long term saving and pension product.
Strategic alliance between takaful operator and banking institution where
takaful product market through bank channels.
Help takaful operator to increase the customers.