11 October, 2017
The Life Insurance and Family Takaful Framework (Framework) issued by Bank Negara Malaysia (that is, the Central Bank of Malaysia) (BNM) on 23 November 2015 sets out initiatives for the diversification of distribution channels in a bid to promote greater accessibility and outreach of life insurance and family takaful products. One such initiative is for licensed insurers and takaful operators carrying on life and family takaful business (insurers) to offer standalone life insurance or family takaful products (pure protection products) commission-free through at least one direct distribution channel.
On 23 June 2017, BNM issued a policy document on Direct Distribution Channels for Pure Protection Products (Policy Document). Effective 1 July 2017, insurers providing pure protection products that are term products structured to cover only the risk of death with or without total permanent disablement and without maturity benefits (Pure Protection Term Products) must have in place a direct distribution channel to distribute through either (a) the head office and branch premises of the insurer; or (b) an online platform (whether developed as the insurer's proprietary system or outsourced), where consumers deal directly with the insurer without the involvement of intermediaries (Requirement). Insurers providing pure protection products that are critical illness product or medical and health products will only be required to comply with the requirement effective 1 July 2018.
Beyond specific requirements that apply only to pure protection term products, insurers should note the following policy requirements in respect of any pure protection products offered through direct distribution channels:
- the selected direct distribution channel should have a geographical reach to facilitate accessibility, and capable of contributing to increasing the share of regular premium/contribution products offered through non-agency channels
- the insurer should price pure protection products offered through direct distribution channels affordably
- prior approval of BNM is required for any new online platforms
- further obligations apply where the insurer develops an online platform by outsourcing to a third-party vendor
- the insurer is prohibited from including commissions in the pricing of any product (whether or not a pure protection product) offered through a direct distribution channel
There are further business conduct requirements (such as product suitability requirements disclosure requirements) and other infrastructure and operational requirements that apply to Insurers, which aim to ensure that consumers are not misrepresented or misled, and that the terms and conditions and exclusions of the product is transparent and clear, so that consumers can make an informed purchase decision.
With its emphasis on consumer accessibility, the availability of products, the promotion of sound market conduct practices, and market competiveness and innovation, the requirements and safeguards introduced by the Policy Document reinforces the potential for direct distribution channels to complement agency channels. Against the backdrop of improvements in financial literary and digital advancements, both channels are expected to contribute to the reduction of the protection gap, and toward greater financial inclusion in Malaysia’s life and family takaful industry.
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