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 RiskBusiness Continuity
Risk
Reputation Risk Fiduciary Risk
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.
EPF
Employers 12% Employees 11%
monthlymonthly
Withdrawal Age
Age 50 or 55
ContributionAge
Age 18 – 50/55
RichRetirees
Lump sumFinish
Within 3 Years!
BEFORE ANNUITY
EPF
6 ConventionalInsurers
2 Takaful Operators
AFTER ANNUITY
Lump sum Lump sum
ParticipationAge
Age 18 – 55
AnnuityAge
Age 55 - 100
ConsciousRetirees
ConsciousRetirees
RM100 monthly
RM100 monthly
Relieved!
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
BNM’S MITIGATION ACTIONS
Shareholders
Qard
Qard RM100 Monthly
RM100 Monthly
Participants
• 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
WHAT WERE THE CAUSES:
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
Product was withdrawn fromthe market in 2002 due to
objections by MTUC(Malaysian Trade Union Congress)
THANK YOU