Can system really help address takaful operators challenges,

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In today’s environment, Takaful Companies face mounting challenges – stiff competition from the financial services industry; business innovation, regulations, and compliance; and process challenges such as cost containment to return better efficiency and value to stakeholders. In the midst of all these, insurers are increasingly challenged by commoditisation in personal line products, shifting customer requirements, sharp competition, mergers and acquisitions requiring companies’ consolidation, globalisation and economic uncertainties. At the company level, operators are facing increased pressure to minimise risk while maximising growth, improve profitability while reducing turnaround time, improving speed to market of new products, provide positive customer experience, and give good returns on their premiums paid.
Rapid product development is a competitive advantage but now demands much customization to tailor make solutions for each policy owner requiring flexibility, multiple options, and innovations to push information and pull data for analysis or follow ups. These requirements demand business transformation and paradigm shifts. They are a great challenge when there are no structured change management processes, change management tools, automated straight through processes, and a central repository of customer information. Without these, insurers are unable to take the opportunity to capture the market, remain cost competitive, increase profits and retain service excellence. These challenges if not overcome, will be a very real and substantial setback to your plans to pull ahead of your competitors, differentiate yourself in the marketplace and your customers.
By leveraging on our core capabilities and our unique business focus on the insurance industry, AETINS can help you meet these critical needs and unleash your full business potential.
Find out more about our TSF Framework Architecture

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Can system really help address takaful operators challenges,

  1. 1. AETINSMINDSHARE February 2012Can System really help addressTakaful Operators challenges? By: Ravindra Mohan
  2. 2. Can System really help address Takaful Operators challenges? Feb 2013 Follow us on Facebook By : Ravindra Mohan VijalapuramThe market opportunity for Takaful is significant but penetrating the market effectively is a challenge forTakaful Operators. As newcomers, they have to compete with more mature conventional peers, who clearlyhave the advantage of scale. They also have to compete with fellow Takaful Operators, who aspire to securemajor share of the pie.Below are the practical challenges faced by Takaful Operators in implementing and achieving sustainablebusiness growth:-1. Market Penetration and Acquisition Costs: Lower market penetration and higher acquisition costs have been a majorproblem daunting Takaful operators in MENA. In many markets, increased competition and aggressive pricing is resulting inshrinking margins. Furthermore, industry reports show that Takaful operators have higher commission ratios compared toconventional insurers. This is due to the advantage of scale the conventional insurers have.2. High Operation Expenses : Most operators have expense ratios (Administrative Expenses /Net Earned Premium) of morethan 30%. This is substantially high compared to conventional companies who are around 10% lesser than the Takafuloperators.3. Compliance towards Shariah : Takaful operators need to manage the clear segregation of Operators and Takaful fundsat all times to ensure Shariah compliance. With the complexity of Takaful business, this is a daunting task. Accurate calculationof surplus from various Takaful funds (Death, Disability, CI, Motor, etc..) and distributing back to participants poses an addedchallenge. This also adds onto the Operational costs and increases the Expense ratio.4. Regulatory Evolution : Takaful industry is learning and evolving. Lack of standardization at this point of time is seen asa major risk. There are different models of takaful with different flavours implemented in each company. We have seencontinuous regulatory changes in the last few years. Some are as sweeping as that of Saudi Arabia adoptingthe co-operativemodel. New standards are evolving (AAOFI, IFRS 9). There is an imperative call to move towards Solvency II regime. All theseimpact Takaful operators, unless they are prepared for change.5. Shortage of Skilled Staff and High Staff Turnover : This is one of the key challenges faced by Takaful Operators. Shortageof skilled staff and frequent turnover leads to problems of knowledge transfer and thus affects service. More time is spenton service recovery when it should be on service delivery. How PentaTAKAFUL aligns to Some of the strategic ways PentaTAKAFUL framework can help address Takaful Operator Takaful operators:- challenges 1. Market Penetration and Acquisition Costs: Understanding the market needs, ability to launch new innovative products in a timely manner, providing effective tools and service to agents at the point of action are the key success factors for business growth. a. Launch Innovative Products : PentaTAKAFUL has a robust Product configuration framework, which has an extensive range of functional parameters to enable or regulate with. With parameterization and standardization at fundamental levels, it allows you to experiment freely to arrive at combinations which best suits your market and customers. b. Bancassurance – Sell Policy on the Spot : PentaBANCASSURE allows bank staff to illustrate and sell policy on the spot without compromise on risk assessment or compliance. Simplified proposal capture, pulling data from bank systems, transfers of premium from customers’ accounts make the process seamless. With merely 30min to 1hour turnaround time, a bank customer walks out of the bank as a Takaful participant. This portal can also be extended to other distribution partners like Brokers or Agents. c. Integrated Agency Management and KPI system : KPI’s and incentives are stimulants for agents. An integrated KPI tracking system supplemented with a flexible benefit compensation system allows you to understand and use the hot buttons of your agency force, thus enhancing the business.
  3. 3. 2. Controlling Expense Ratios : It is important thatTakaful operators align costs to necessary areas andhave a framework which allows continuous optimizationof costs. With PentaTAKAFUL as the backbone, withincrease in scale, this expense ratio shall reduce considerably.Below are some of the reasons:-a. Automated Underwriting : With all the underwritingrules and decision making configurable and automated,you can experience from 70% to 90% of cases going Below picture illustrates the movement among the various funds forwithout any underwriter intervention in retail some of the sample transactions. Managing these movements in abusiness. This cuts down the need of large number of manual or semi-automated system is not practical and leads tounderwriters and allows the underwriters to focus errors and approximations. And any error means that the funds arebetter on remaining cases, thus, improving the claims mixed and Shariah compliance is compromised.ratio too. In PentaTAKAFUL, these movements happen in real time with completeb. Shared Expertise Services: Customer centric transparency. Status of each fund can be assessed on daily basis,service approaches allows us to integrate Finance, thus enhancing management insight and assuring shariah compliance.Agency, Claims and Reinsurance functions acrosslines of business. Hence, these can be as part ofshared services for the overall organization. This PARTICIPANT FUND INVESTMENT FUND TABARRU FUND OPERATORS FUNDenhances grouping of staff and cuts down staff costs. Contribution Subscription Tabarru (MC)c. Closed Loop Follow-ups : All the mundane work of Acquisition Charge, Policy Fee, Other Chargescommunication, follow-ups are automated, thusreducing costs. Withdrawals Wakala Switch Free Claims, ReTakaful Expensesd. 100% accounting automation and compliance Participant/to standards: All the financial movements of Agent/ Stakeholder Commission, Medical Feesbusiness and the Takaful funds are automated. Andwith real time segregation of funds and daily posting ReTakaful Claims Recovery, Commission, Profitallows for timely insights into business. Surplus3. Facilitating Governance and Shariah Compliance :Takaful business is more complex in managementthan conventional. The reality of Takaful operations 4. Handling Regulatory Changes : A good core system should beshows that it requires 4 different funds in principle to flexible to adapt to regulatory changes. PentaTAKAFUL with itsbe managed as part of operations. They are: robust approaches, allows to incorporate changes quickly and smoothly. Whether the change is with regards to switch in Takafula. Operators Fund (Shareholder’s Fund): Wakala model ( Eg : Shift from Mudharabah to Wakala model in Malaysia),fees for commissions and administrative expenses or a demand to switch the fundamental funds (Eg : Shift tocollected and corresponding expenses from it. co-operative model in Saudi Arabia), PentaTAKAFUL handles it smoothly with mere parameter changes. We can expect number ofb. Tabarru Fund : This is the risk fund from which changes in regulations and accounting approaches in the nearclaims and reinsurance are handled. Underwriting future. With its sound architectural base, PentaTAKAFUL can besurplus is calculated on this fund. align to changing needs with minimal impact.c. Participants Fund (or Operations Fund) : Theseare amounts belonging to the participants which has 5. Handling Staff Turnover : Key challenge for both Insurers andnot been allocated yet to respective funds. Takaful operators is knowledge management. Discontinued products still needto be serviced over longer duration. People keep moving.d. Participants Investment Funds : Applicable for With PentaTAKAFUL Plan wizard and rules base, all the businessLife products, wherein, the investment part is managed rules and product rules are centralized. This allows new people toby Takaful operator. understand the business and products quickly and get inducted as soon as possible. This substantially reduces the servicing risks. PentaTAKAFUL is capable of addressing the challenges encountered by Takaful operators. With all the Takaful funds and inter-fund movements built in, it assures shariah compliance without incurring additional compliance costs. It will enhance your reach through different distribution channels with personalized products. With effective use, PentaTAKAFUL shall act as a strong backbone to your business.
  4. 4. INSURANCE & TAKAFUL SOFTWARE SOLUTIONSAETINS is an Insurance & Takaful Software Solutions Provider.We offer a single end-to-end Insurance & Takaful Solution that covers all lines of business: Individual and GroupLife, Investment Linked, General, Health, Takaful Family and General. It spans across functions like illustration,quotation, new business, policy/contract servicing, claims, agency management, commission and benefits,accounting and services.AETINS’ solutions are customer-oriented, process-driven, and designed the way people work. It comes readywith rich features, comprehensive functionalities, and off-the-shelf capabilities with most of the good practicesof the industry already incorporated. This allows you to deploy ISF/ TSF without the need for intensive customisation,saving precious time and costs.WHY US? Trusted Insurance & Takaful Software Specialist 100% Success Rate Proven Solutions International Awards & Certifications Insurance Products Takaful Products ISF Life - ISF I-Life + ISF G-Life + ISF I-Linked Penta Takaful Family - Family Takaful and Group ISF I-Life - Individual Life Insurance Solution Takaful Solutions ISF G-Life - Group Life Insurance Solution Penta Takaful General - General Takaful Solution ISF I-Linked - Investment Linked Solution (property & casualty) ISF Agent - Web Portal for Insurance Agents Penta Banca Family - Selling Family Takaful ISF Banca-Life - Selling Life Insurance through Banks through Banks ISF Illustrate - Offline Illustration for Life Insurance Penta Agent - Web Portal for Takaful Agents ISF Gisa - Group Insurance Self Administration System for Employers Penta Illustrate - Offline Illustration for family takaful ISF General-Life - General Insurance Solution (Property & Casualty) Penta Gisa - Group Insurance Self Administration System ISF Banca-General - Selling General Insurance through Banks for Employers ISF Gensure - Web Portal for Selling & Servicing General Insurance Penta Gensure - web portal for selling and servicing general ISF Financials - Financial & Accounting Solution ISF Health - Health Insurance Solution Website: http://www.aetins.com Connect with us : Email: enquiry@aetins.com Tel: (603) 7620 3043 / 7955 3043 Fax: (603) 7957 1187AETINS Sdn Bhd (457050-A)Suites 3A02, Menara PJ, AMCORP Trade Centre, No.18, Jalan Persiaran Barat,46050 Petaling Jaya, Selangor Darul Ehsan, Malaysia. © Copyright AETINS, All rights reserved. ITMS 532312

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