As the banking and insurance industries become increasingly sophisticated so do the risk management mechanisms and oversight infrastructures as these facets converge to keep pace with the increasing demands and needs of consumers. VINEETA TAN catches up with Malaysia’s national financial consumer protection authority Perbadanan Insurans Deposit Malaysia (PIDM) to explore in detail the agency’s three-year corporate plan, particularly the exciting pipeline for the Takaful segment.
Mandated with the task of promoting and contributing to the stability of the country’s financial system, PIDM’s core responsibility is to administer two financial consumer protection systems: the Deposit Insurance System (DIS) and the Takaful and Insurance Benefits Protection System (TIPS). Coinciding with its 10th anniversary, the statutory body this month released its Corporate Plan 2015-17 which will see the introduction of a slew of initiatives designed with operational effectiveness in mind along with long-term sustainability.
Rating prediction model
In addition to completing the Takaful and Insurance Risk Assessment System, PIDM revealed that it plans to introduce a unique rating prediction model for TIPS using statistics to forecast the likelihood of any changes to the member institutions’ existing ratings.
“The rating prediction model for TIPS will allow PIDM to pre-emptively identify potential pressure points affecting the industry as a whole and our member institutions specifically,” explained Rafiz Azuan Abdullah, PIDM’s executive general manager, to IFN. “It is a key component of PIDM’s continuous risk assessment and monitoring of its member institutions and will complement the existing risk assessment and monitoring framework already in place.”
The key theme in this proposed mechanism is: early detection — which will facilitate the undertaking of prompt corrective measures, enabling the necessary effective early intervention actions which will subsequently minimize costs to the financial system. This model, Rafiz revealed, will be developed for both the Islamic and conventional insurance industries in phases over the next few years.
Differential Levy System
Another important initiative is the implementation of the Differential Levy System Framework for Takaful Operators (DLST Framework), expected to take effect next year. With the enforcement of Bank Negara Malaysia’s Risk-Based Capital Framework for Takaful Operators early last year, it has become even more imperative and timely for PIDM to level the playing field between conventional and Takaful players.
Equally significant, is that the utilization of a differential levy mechanism would encourage insurer members to adopt sound risk management practices and minimize excessive risk-taking. “Takaful operators will have to improve the overall aspects of their businesses in order to achieve the best-rated category and be subjected to the lowest levy rate,” said Rafiz.
Adapting to a changing financial landscape
Apart from the abovementioned initiatives, the corporation is also spearheading the development of the IADI Core Principles for Effective Islamic Deposit Insurance Systems, in response to the escalating need for an effective Shariah compliant deposit insurance system in light of the rapid expansion of the Islamic financial services industry.
It cannot be denied that the Islamic financial industry in Malaysia has come a long way and is making good pace in commanding a significant market share. However, this progress cannot be taken for granted and an effective safety net has to be in place to support the industry.
|IFN survey: Islamic finance — has it really evolved?
Of late, there has been a widening debate about whether the development of the Islamic finance industry is in fact evolution towards conversion with conventional finance with mostly superficial remnants of the original ideals. Dr Andrei Juravliov, a researcher and Islamic finance course lecturer at the Moscow State University, is one of those who is looking into this thorny issue. In preparation of an essay on this subject, he has teamed up with IFN to conduct a dedicated survey. Juravliov is not expecting to receive statistically strict results. However, he believes that the answers may help to feel the pulse of the Islamic finance community and Muslims at large.
Once complete, IFN will publish the full essay — something we’re certain you’ll be interested to read. Therefore, please spare a few minutes to share your thoughts by answering this questionnaire. Your input is most appreciated.