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Case Study EPF Takaful Annuity Scheme (SATK) 1999 - 2001 TK 6413 Islamic Risk Management

Case Study EPF Takaful Annuity Scheme (SATK) 1999 - 2001 TK 6413 Islamic Risk Management Kartina Md Ariffin. One Risk Leads To More Risks. Monopoly. Pricing Risk. Investment Risk. Business Continuity Risk. Reputation Risk. Fiduciary Risk. Employees Provident Fund (EPF).

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Case Study EPF Takaful Annuity Scheme (SATK) 1999 - 2001 TK 6413 Islamic Risk Management

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  1. Case Study EPF Takaful Annuity Scheme (SATK) 1999 - 2001 TK 6413 Islamic Risk Management Kartina Md Ariffin

  2. One Risk Leads To More Risks Monopoly Pricing Risk Investment Risk Business Continuity Risk Reputation Risk Fiduciary Risk

  3. Employees Provident Fund (EPF) Agency under Ministry of Finance, Malaysia The EPF is a social security institution formed according to the Laws of Malaysia, Employees Provident Fund Act 1991 (Act 452) which provides retirement benefits for members through management of their savings in an efficient and reliable manner. The EPF also provides a convenient framework for employers to meet their statutory and moral obligations to their employees.

  4. BEFORE ANNUITY Employees 11% Employers 12% monthly monthly Contribution Age Age 18 – 50/55 EPF Finish Within 3 Years! Lump sum Withdrawal Age Age 50 or 55 Rich Retirees

  5. AFTER ANNUITY EPF Participation Age Age 18 – 55 Lump sum Lump sum 6 Conventional Insurers 2 Takaful Operators RM100 monthly RM100 monthly Annuity Age Age 55 - 100 Relieved! Conscious Retirees Conscious Retirees

  6. WHAT YOU DON’T KNOW ABOUT ANNUITY PRODUCT WAS MISPRICED Projected Investment Return - 8% Actual Investment Return 5% - 6% PROMISES WERE ALMOST BROKEN Monthly RM100 could not be paid, RM80 would be paid instead CONTRACT WAS UNCLEAR SALES ILLUSTRATION WAS MISLEADING

  7. BNM’S MITIGATION ACTIONS Qard Shareholders RM100 Monthly Qard RM100 Monthly Participants

  8. WHAT WERE THE CAUSES: • Actuarial consultancy was monopolized • Non-existence of devil’s advocate • Everything was based on good faith • Over confidence over the stability of the investment environment • Lack of disclosure • Contract was drafted by a fresh graduate • Highly unregulated • Implied guarantee, no disclaimer

  9. CONSEQUENCES TO THE INDUSTRY: YEAR 2002 TILL NOW • BNM has been updating the Product Development guideline on a continuous basis • Every insurer/ TO is required to have a Product Development Framework • Product Development Framework becomes the book of life of Product Development staff • Sales Illustration changed from 2-page to almost a 5 - page • Every key personnel has to sign off a product sheet: Legal, Shariah, RM, IT,Appointed Actuary, Audit, Marketing • CEO / Board of Directors / Shariah Board has to sign off • BNM verifies for 3 months • Product Development becomes a nightmare • Fresh graduates get to sleep in the office

  10. Product was withdrawn from the market in 2002 due to objections by MTUC (Malaysian Trade Union Congress)

  11. THANK YOU

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