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.
