After building its brand around the “mudharabah” concept, the country’s oldest takaful operator is expanding its existing business model to break into new niche markets.
“We’re currently the only takaful operator operator based on the mudharabah concept; the eight other companies are using ‘wakalah’. Going forward, we will introduce a hybrid mudharabah-wakalah concept,” Syarikat Takaful Malaysia Bhd (Takaful Malaysia) group managing director Hassan Kamil (pic) told The Edge Financial Daily in a recent interview.
“With my actuarial expertise and team of actuaries, we will be able to design and structure new products that are more customer-oriented and serve more niche customers,” he said, adding that the company was slated to release its first such hybrid product in November.
On why Takaful Malaysia was adopting this strategy after several years of offering only mudharabah-based products, Hassan said thatwhile mudharabah was still a good model, the market was getting more competitive, ‘so in order for us to continue to grow we have to explore other models’.
He added that the company would continue to retain some of its mudharabah products. “We haven’t decided on the ratio of the new product mix yet, but there definitely will be a mix of wakalah and mudharabah (products). We have to test our new product first. If it goes well, we’ll be selling more of these.”
Mudharabah refers to the commercial profit and loss sharing contract between the provider or providers of funds for a business venture and the entrepreneur who actually conducts the business. In the case of takaful insurance, the takaful operator and its policyholders share profits and losses.
Under the takaful wakalah model, the takaful operator acts as an agent to policyholders.
The surplus or profit is owned by the policyholders, and may be reduced by a performance fee incentive for the operator before distribution to the policyholders.
This strategy is part of Takaful Malaysia’s bigger plan to regain its pole position in the domestic takaful sector. “We are embarking on a major transformation process for Takaful Malaysia in terms of systems, people and operations.”
He added that the company had recently invested RM40 million in its information technology infrastructure, and was continuously investing in training, securing talent and upgrading technical skills. “We’ve allocated a budget in excess of RM1 million for training alone for the coming year.
“We hope that the new system and processes will help us regain the position as the No 1 takaful operator in Malaysia,” Hassan said.
Takaful Malaysia used to hold a monopoly position in the industry, but has seen its market share dwindle since other more aggressive players entered the scene.
On how Takaful Malaysia planned to grab a sizeable chunk of market share, Hassan said that the company was stepping up product innovation and enhancing its service capabilities. “There are people willing to play slightly more for better products, so we are beefing up our service capabilities and the way we interact with customers.”
While most of the company’s existing customers comprise low- to middle-income earners, Hassan said that Takaful Malaysia was now targeting more middle- to upper-class and business customers. “We are looking to sell more investment-oriented products as opposed to protection,” he said.
Currently, investment products comprise less than 10% of the company’s product mix. According to Hassan, Takaful Malaysia has two structured funds in the pipeline, jointly developed with investment banks in Singapore and Hong Kong respectively.
One of these funds will be ringgit-based, while the other will be a US-dollar currency fund aimed at Middle Eastern investors. “ We hope to sell the US dollar currency fund to Middle Eastern investors through our Middle East bank partners here. We plan to start a roadshow to visit partners after Raya,” Hassan said, adding that Takaful Malaysia was not eyeing other emerging markets for the US-dollar fund at this point in time.
The new investment product and structured funds are expected to contribute RM200 million in revenues for the coming financial year, Hassan said. He added that Takaful Malaysia was also targeting to establish an international currency business unit by year-end.
Hassan said Takaful Malaysia was eyeing between 15% and 20% growth in the coming year as a result of all these changes. New products will be the key growth driver of Takaful Malaysia’s asset base, he said.
“To date our total asset base is RM3.4 billion. We hope to expand it to an excess of RM5 billion by 2010.” For the financial year ending June 30, 2006, Takaful Malaysia’s total assets stood at RM3.22 billion, compared with RM2.79 billion in FY05.
Last year, The Edge reported the issue of some 6% of the company’s RM3.22 billion assets or RM200 million worth of unreconciled differences in Takaful Malaysia’s accounts. Hassan said that the unreconciled differences had been resolved within two months after the company’s AGM in November. “The unreconciled balances have had no negative or positive implications to the balance sheet and profit and loss statement,” he added.
Going forward, Hassan said the company was focusing its efforts on its Malaysian business for the next two years. It plans to grow its retail business by leveraging on its existing 123 branches and is also in discussion with Bank Islam to utilise the latter’s branches to sell its products.
“A bancassurance model is already in the works. We hope to have it in place by the middle of next year,” he added.