Mr Donald Jaganathan, Assistant Governor, Bank Negara Malaysia

Distinguished Speakers

Guests and Delegates

Members of the Media

 

Selamat Datang Ke Malaysia ! Welcome to Malaysia!

 

On behalf of the Life Insurance Association of Malaysia (LIAM), I would like to thank Asia Insurance Review for giving me this great honour to address fellow delegates, both local and international, on this auspicious occasion. The 15th Asia Conference on Bancassurance & Alternative Distribution Channels has once again proven to be another eventful gathering with over 145 industry experts from across 25 countries here today. I wish to extend my heartiest congratulations to the organizers for choosing Kuala Lumpur for this conference and for an excellent job done.

 

Ladies and gentlemen,

 

In line with the theme, “Nailing Down the winning strategies in Bancassurance”, this conference augurs well with the current developments and remarkable achievements of the Bancassurance industry today. The theme also highlights the significant roles played by Bancassurance as an important distribution channel in providing insurance protection to individuals and business enterprises.

 

In Malaysia, Bancassurance business has grown significantly over the years.  When bancassurance first started in 1993, it gained a mere market share of 2% of new business premiums.   However, over the last two decades, the growth of bancassurance has been phenomenal, capturing about 60% market share for single premium business. In terms of its share of annual premium business, it has grown steadily in strength to 12% of new business premiums. The tied agency channel has registered a 23% market share for single premium business, and 86% of new business for annual premium policies. As of 2013, in terms of market share based on weighted new premiums, the agency channel was still leading with 80%, while the Bancassurance channel was a distant second with 16%. Direct channel contributed 2% of market share, with the remaining 2% from brokers, financial advisers and other channels.

 

Today, banks and post offices represent strong distribution channels with 20 financial institutions partnering 13 life insurance companies.  The number of bank executives involved in selling life insurance has risen close to 22,000 representatives. In terms of product distribution, banks play a very unique role of being able to reach out to high net worth individuals and the population in the underserved markets.  In Malaysia, there are many partnerships between insurance companies and banks to sell from simple low premium insurance solutions to sophisticated financial planning products catering to the high income group customers.

 

Ladies and Gentlemen

 

One of the many success factors of the strong bancassurance presence in Malaysia is the conducive regulatory environment. The regulations facilitate the growth of bancassurance alongside the traditional agency channel. The regulator, Bank Negara Malaysia, has harmonized the rules governing bancassurance and agency business. This has enabled both distribution systems to complement each other.

 

For instance, the regulations to govern the professionalism of agents and bank executives are similar. As such insurance companies do not have to worry about managing channel conflicts since both bank executives and agents have to comply with the same qualitative requirements, such as:-

 

1) All bank executives are required to pass the Pre-Contract Examination and Investment-linked examination (if selling investment-linked products) and to register with the Life Insurance Association of Malaysia before they are allowed to sell life insurance products.

 

2) In order to ensure that bank executives have a good knowledge of the life insurance products they are selling, they are required to undergo a yearly Continuing Professional Development (CPD) training of 30 hours.

 

3) As bank executives are expected to offer a range of simple to complex financial planning products, they need to have a strong knowledge of financial planning.  It is compulsory for them to attend at least two modules of the Registered Financial Planning (RFP) qualification. The RFP qualification is conferred by the Malaysian Financial Planning Council and is a recognized qualification by Bank Negara and Securities Commission for licensing of financial advisers and financial planners.

 

4) The industry has taken proactive measures in ensuring all front liners conduct a customer fact finding evaluation before they recommend any product to their customers. This includes an assessment of the   customers’ needs for savings and protection and their level of affordability.  This is to ensure that customers are given adequate information to make a well-informed decision before they purchase a life insurance policy. Bank executives are rewarded with both production and persistency bonus, motivating them with incentives to bring in quality business.

 

5) In line with the philosophy of Treating Customers Fairly, insurance companies will conduct a Welcome Call on new policies sold by agents and banks. This is to ensure that the customers have been provided with all the disclosures and proper advice of the life insurance policies they have purchased.

 

6) The life insurance industry has also adopted stringent measures to address poaching of policies between different distribution channels.  All companies are required to put in place a mechanism to monitor replacement of policies involving banks and agents.   A new policy that is taken to replace another policy will be subject to a forfeiture of commission on both bank executives and agents.

 

A conducive regulatory environment is an important key success factor to support the growth of any distribution channel, and this is evident in the case of Malaysia.

 

Ladies and gentlemen,

 

The other emerging distribution channel which is gaining a strong foothold is from the Financial Advisers. Today, we have some 14 financial advisers’ firms and 132 financial advisers’ representatives licensed by Bank Negara Malaysia. Several life insurance companies have appointed financial advisers to market their products.  Financial advisers are allowed to represent multiple insurance companies and offer a wide range of financial planning products to their customers.

 

Over the years, we would also expect to see the emergence of new direct channels using internet and social media. This is because the revolution in mobile devices, Internet usage and social networking are changing the way consumers connect, interact and transact businesses. As of end 2013, the penetration rate of mobile phones in Malaysia was 144%. The penetration rate for Internet Broadband was reported at 67% with a total of some 2.2 million private households. The mobile commercial is forecast to grow more than seven times to reach RM3.43 billion in 2015 which translates to 60% of the online shopping market.

 

Today, the Gen Y makes up 40% of the Malaysian population and is growing at a rapid rate of 2.6% per annum. Within the next few years, this group will be the potential buyers of life insurance. Let us not forget that this generation grew up with the digital age. Insurers are therefore compelled to find creative ways and innovative channels to optimize distribution of their products to meet the ever changing demands and lifestyles of today’s consumers.

 

On the local front, in November 2013, Bank Negara Malaysia has mapped out a new concept paper to reform the life insurance and takaful industry in Malaysia. The framework has outlined various strategic measures to increase the penetration rate of insurance and takaful from 54% to 75%. Key performance indicators have also been set for the insurance industry to  achieve a penetration level of 10% of the banking population (currently at 5%)  while the market share of regular premiums for the non-agent channel is to achieve more than 30% from 14% currently.

 

This changing landscape will present opportunities and new challenges to the industry.  We have to go beyond the agency and banking channels to discover new untapped potentials. I am positive that this two-day conference will provide an excellent platform for insurers, bankers and service providers to explore into new strategies of growth.

 

On that note, I thank all of you for attending this conference and I hope this conference will be a rewarding experience for everyone.  To our friends from overseas, please take some time off to enjoy the lovely sightseeing places in Malaysia, while savoring the splendor of our Malaysian cuisine and enjoy the shopping haven that we have a lot to offer.

 

Terima Kasih.

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