MORE UPDATES ON FINANCIAL SECTOR BLUEPRINT: WHAT THESE MAY MEAN TO INSURERS/TAKAFUL OPERATORS, MALAYSIANS AND OTHER RELATED PARTIES.
Signals of development are already beginning to flash out since the Malaysian government unveiled the Financial Sector Blueprint (FSB) on Dec. 21, 2011, with the theme “Strengthening Our Future”.
My fraternal link with relevant sources enables me to retrieve the following latest updates relating to fund management and insurance/takaful segments:-
· *Securities Commission, being tasked to select and appoint “suitable” fund houses to participate in the proposed private retirement or pension scheme, had advised interested players to submit their applications by Feb. 15, 2012. My enquiries with a few prominent fund management companies reveal they have sent in their applications. Meanwhile, some insurance/takaful key officers appear to be uncertain whether their side would be involved as they have not received clear-cut directions on this subject, although Recommendation 2.1.7 of the blueprint (covering 2011 – 2020) indicates “positioning insurance companies and banks as significant intermediaries in the private pension industry” and “products such as annuities that mitigate longevity and inflation risks, locked-in savings that minimise pre-retirement” are being lined up for this segment. We can understand that banks are in - banks either have their fund management wings or operate as investment banks. But what about insurers/takaful operators? A few of them have separate fund management houses but what about those without such separate entities? How do they come in? Would they not be expected to be involved in product development if annuities are really meant to be one of the vehicles? Would the intended vehicles be insurance products linked to funds managed by a panel of appointed fund houses……….or unit trust types? Or does the term “significant intermediaries” refer to insurance/takaful players and their distribution channels only serving as “agents” to sell the products churned by fund houses? Is that the original intention?
· *A list of identified areas has been circulated to insurance companies and takaful operators to collect feedback how this segment can support the FSB objectives for “higher value added” financial activities. Some of the pointers are:
- What they players can do to expand bond insurance, credit guarantee insurance, liability insurance etc.
- Participation in infrastructure funds.
- New products in line with changing demographics (My note: Are not retirement/pension products meant to cater for longer average life span of Malaysians, and thus to do with changing demographics?)
- Participation in the national health financing scheme and long-term care service.
- Support the initiative of Malaysia as a takaful and re-takaful hub.
- Further development of micro-insurance/micro-takaful.
- Managing prices when caps on prices are removed.
- E-payments for claims, commissions and others.
- Establishment of the proposed National Council for Financial Consumer Protection & Education.
- Establishment of the proposed Financial Sector Talent Council.
Meanwhile, winds of diverse opinions expressed in the print media, electronic media and vocal forums have begun to blow among the Malaysian community regarding the direction for formulating the national health financing scheme, called “ICare” plan. Contentions have also built up whether the current two separate health systems (public healthcare treatment, private healthcare treatment) should be replaced by an integrated system which is the main essence of 1Care.
The other topic that is rife with queries among Malaysians is the private retirement/pension scheme, which sees less publicity than 1Care up to this juncture.
I believe the best way to feel the winds and waves of the latest developments on 1Care and the private retirement/pension scheme is to digest information from various media sources. Hence, for your easy reference, I provide pertinent excerpts (below) for you to analyse and then hopefully you can form your own conclusion. At the end part of this sharing, I will summarise with my comments based on my personal feel of the overall possible scenarios that may beset. So, here goes…………….first on the private retirement/pension scheme, then on 1Care.
FROM THE ONLINE PORTAL OF A MAIN NEWSPAPER, APR. 15, 2011:
- CIMB Group aims to set up a new private pension scheme in Malaysia.
- The Group was presently in talks with government agencies.
- This venture is with CIMB-Principal Asset Management Bhd and is a supplement to the Employees Provident Fund.
- Prime Minister Datuk Seri Najib Tun Razak had said in the opening of Invest Malaysia 2011 that under the Capital Market Masterplan 2, a new private pension fund framework enabling the setting up of private retirement schemes approved by the Securities Commission would be in place by year-end.
- …………will provide the public with options to make additional voluntary long-term contributions to supplement their retirement savings.
- Subject to the Securities Commission’s approval, provider of funds may offer a range of products from which individuals can choose to invest in.
FROM A FINANCIAL/BUSINESS NEWSPAPER, DEC. 6, 2011:
- Suitably qualified and experienced pension and fund managers can now apply to obtain licence to operate private retirement scheme.
- ………with the required expertise in pension or retail fund management would be approved……..appropriate range of dedicated retirement products catering for different investment and risk profiles.
- Interested applications are to submit their application to the Securities Commission by Feb. 15, 2012.
- The framework can be used by individuals who have disposable income to save as well as employers to make voluntary contributions above the EPF mandatory contributions……
- In the recent Budget 2012 announcement, it was reported that a personal tax relief up to RM3,000 will be given to contributions by individuals to private retirement scheme approved by Securities Commission, as well as tax deductions to employers for contributions above the statutory rate up 19% of employees’ remuneration.
FROM THE ONLINE PORTAL OF A NEWSPAPER IN EAST MALAYSIA, DEC. 22, 2011:
- On the private pension funds, Bank Negara Malaysia said efforts would be geared towards developing supporting infrastructure and regulatory framework for insurers and banks to develop pension in collaboration with the government.
FROM A WEEKLY ECONOMICS/BUSINESS MAGAZINE, AUG. 12, 2010:
- Although government spending covers just under half of the country’s total healthcare expenditure, Liow Tiong Lai was recently quoted as saying that the healthcare revenue collected by the ministry barely covered 5% of the annual health expenditure. This has raised debates as to whether the government can and should continue to subsidise healthcare………….
- It is learnt that the ministry was mulling plans to register patients to a primary healthcare provider (PHCP) who would act as the first point of contact for medical care. Access to secondary and tertiary healthcare would require the PHCP’s referral.
- Those wanting to seek treatment outside the system would have to pay on their own.
- Wage earners above age 18 to make scheduled payments. Also self-employed, employers would be required to contribute equal amount.
- Government likely to fund on behalf of pensioners, elderly, poor and civil servants of up to five dependents.
- ..........directly managed by the government via proposed National Health Financing Authority to manage its own budget and personnel, while remaining accountable to the ministry.
- Country’s total health expenditure………….with 44.1% funded by government expenditure and 55.9% from private spending.
FROM THE PORTAL OF A DOCTOR (RECENTLY):
- Patients assigned to that particular doctor will have a limit to number of visits in a year. Those with chronic illnesses like asthma, diabetes will not be able to see their doctor as often as now.
- All doctors will have to be in this scheme. Doctors will not be allowed to dispense medicine.
- Certain diseases will be excluded from this scheme?
- Question: How to determine who is poor? Based on income tax declared? Petty traders who don’t report their income – go under the poor group?
FROM AN ONLINE COMMUNITY NEWS PORTAL, FEB. 10, 2012:
- Datuk Seri Dr. Hasan Abdul Rahman (Director General of Health) took great pains to point out that the details surrounding the healthcare were still “ideas” and “proposals” and that nothing had been set in stone, despite news reports stating otherwise.
- ……..rumoured move to force Malaysians to contribute 10 per cent of their salaries to finance the scheme was just one of the “proposals” of the working groups.
- He said that RM34 billion had been set by the government and the private sector…………all costs of medical visits and treatments will be borne by a central government agency which will pool contributions from the “government, employer, employee and those self-employed.”
- He said that 1Care would eventually ease patient congestion in government clinics as people could now seek treatment at private ones.
- “Mandatory is the word use by the media, it is mandatory meaning it covers all Malaysians. It is a system for all Malaysians,” said Dr. Hasan.
- A source told………..that the healthcare scheme is at a “very, very advanced” stage of planning and is not as preliminary as the Health Ministry has made it out to be.
- ……….replace the current two-tier healthcare system with one which integrates both private and government hospitals in the hope of ensuring more equitable healthcare for Malaysians of all classes.
FROM THE SAME COMMUNITY NEWS PORTAL (AS ABOVE), FEB. 12, 2012:
- The proposed 1Care health scheme will require all general practitioners to submit to additional accreditation before they are allowed to treat patients, a citizens’ group asserted……
- “It’s double licensing,”………..Dr T. Jayabalan told reporters at the sidelines of 1Care forum today.
- He also claimed that each general practitioner would have to come up with RM10,000 to pay for the certificate of accreditation.
- …….see an enforced separation between the “dispensing and prescribing” of medicine….doctors would only be allowed to prescribe……pharmacists……given full responsibility in dispensing medication.
- “In emergency cases, doctors would (still) be allowed to give medication but (only) a capped portion,” he said.
FROM A MAIN NEWSPAPER, FEB. 11, 2012:
- Dr. Hasan said there was a possibility that the proposed system may not be implemented as it was up to the Government.
FROM A MAIN NEWSPAPER, FEB. 12, 2012:
- The 1Care health Plan blueprint will be ready only by early 2014, Health Minister Datuk Liow Seri Liow Tiong Lai said……..
- “The proposal is at discussion stage. It is premature for the public to debate it now. We will consult the public, non-government organisations and professionals. We are not making any decision. It’s not even at the policy level,” he said…..
- “If the people don’t like it, we can scrap it.”
- Liow refuted claims that the scheme, which will be compulsory for Malaysians when implemented, required employees to contribute 10 per cent of their salaries, adding the government and employers would also share the cost.
- “The public wants information, but we can’t give any because we don’t have it. We will open the matter to the public only when the committee finishes the discussions.”
FROM A MAIN NEWSPAPER, FEB. 12, 2012:
- Fact finding visits have been made to other countries, including Taiwan, Singapore, Thailand, Australia, Britain and Germany.
- There are three components of the 1Care concept. These are transforming service delivery, financing and organisational transformation.
- A fact sheet provided to the media during a ministry briefing……..says the vision for 1Care includes giving everyone more choices for healthcare, public or private, regardless of whether one is poor or rich.
- ……care will be nearer to home, work or regardless of where the person is. One can choose their own family doctor and this can be changed if necessary.
- The agency pools contribution from the Government, employer, employee and the self-employed while the Government will continue to contribute for the poor.
- 1Care also promises Malaysians that they will have more choice, have a family doctor and obtain comprehensive, appropriate and high-quality services.
- Points To Ponder On 1Care:
- 1. Access to healthcare will be wider as the patient has a choice of visiting either private or public healthcare facilities.
- 2. There is no age limit in access to healthcare unlike now where most medical insurance covers you up to a certain age.
- 3. You will have a choice of hospital or clinic nearer to your home or work and regardless of where you are (for example when you are back in your hometown or on holiday in other places in Malaysia).
- 4. A family doctor will be assigned. This would be beneficial as the doctor would be familiar with your family’s medical history.
- 5. There’s no need to pay for entitled treatment at the point of receiving it. Payment will be disbursed to the healthcare facility by a central government agency.
- 6. The Government will continue to pay for all, including senior citizens and the poor.
- 7. Pre-existing conditions such as diabetes, cancer, hypertension, congenital heart disease and mental illness will be covered.
Now, I summarise my “feel” of what may possibly be the scenario by year 2020 with regard to the implementation of the directions meant for the insurance/takaful segment under FSB. My “feel” is based on the information that I have already outlined (above) for your easy reference.
· *The question of whether insurers and takaful operators would be involved in the product development of the proposed private retirement/pension scheme is hazy at the moment. Although Recommendation 2.1.7 of FSB mentions about products such as annuities. which are actually insurance-related products, yet this segment has not received any advice from the relevant authorities on the subject. So far, only fund houses have been asked to apply and submit their preliminary proposals. I sense the likely ultimate role of insurers and takaful operators in this endeavour is as sales intermediaries. If you recall, I did emphasise that we need to digest both the Financial Services Master Plan (2001 – 2010) and this Blueprint (2011 – 2020) in totality in order to perceive the financial landscapes to be shaped up by the Government. The Master Plan specifically stated that insurers would be allowed to distribute other personal financial service products on behalf of licensed third parties. The Blueprint lists out “enhance the provision of wealth management products and services” and “support growth of Islamic fund and wealth management” as part of the key recommendations. Private retirement/pension products fall under the ambit of wealth management area. So, do you feel, like I do, that the distribution channels of insurers and takaful operators could come in as the promoters of retirement or pension funds offered by fund houses, since after all some insurance companies already have affiliates in the form of fund management entities? Of course, there is no perfect crystal ball preview of the future until more developments and announcements set in.
· *The picture of insurance and takaful players being involved in the national health financing scheme is much clearer than the private retirement scheme. Recommendation 2.1.9 of FSB clearly zeroes in at the insurance/takaful industry to “offer higher-end and more sophisticated products to complement protection under oncoming national health financing scheme”, which “includes long-term and care benefits such as assisted living and hospice care.” Surprisingly though, none of the recent news write-ups touch on this aspect. Logically, the relevant managing authority would pass the morbidity risk to insurers or takaful operators by paying premiums from the collection pool. The pertinent questions that insurance and takaful players ought to find out are: (a) Will all players participate or only selected ones? (b) Will the premiums charged be standardised for all players, i.e. a flat rate irrespective of health status and age of all living Malaysians? (c) What will happen to the medical and health plans now being offered by them to the community when the national scheme comes in…….will not these be redundant? What about individuals and quarters having medical or health insurance (including employers currently contributing to group medical and health insurance plans for their employees)…….will they not cancel coverage? Even if the products of insurance and takaful players can supplement the national scheme, can many Malaysian sectors afford to contribute to both?
· *I sense that the private retirement/pension scheme is more likely to materialise than the national health financing scheme. The former, firstly, is voluntary and is aside the Employees Provident Fund (EPF). Secondly, the products to be churned out by the fund houses will serve as alternative vehicles for diversification of assets, with a range for selection to suit varying preferences or profiles of voluntary investors. The challenge to the fund houses, though, is delivering better returns than EPF which, for example, declared dividend rate of 5.8% for 2010; otherwise, demand will not be vibrant. As for the national health financing scheme, I will not be surprised if it is finally called off. Much contention from various quarters of the community, including those in the medical profession, has already surfaced before the structure proper could be firmed up. I may be wrong………but if charges will be levied for all services of public hospitals and clinics, is it not in effect “corporatizing” them to be like private ones? What would be the difference compared to the private hospitals? What is meant by having “one (system) which integrates both private and government hospitals”? In the words of the relevant minister, as quoted by a national newspaper on Feb. 12, 2012, “if the people don’t like it, we can scrap it.”…….so for the time being, we can only wait for more and firmer information to be embodied before jumping the gun to form conclusions whether the intended new system would be better than the current two-tier system. Let us be patient for the time being.
· *The most certain reality paved by FSB for the takaful segment is the development of more dynamic players, including re-takaful services. We can expect foreign players with the necessary qualified experience in shariah management to come in, either as standalone, or new joint ventures, or mergers with local players. More innovative shariah funds, including in foreign denominations, will be offered by takaful operators to the market. The drive will come under the Government’s direction to make Malaysia the international centre for overall Islamic finance development. Already, our country can claim credit for issuing the most sukuks (Islamic bonds) on global count – about 60%.
· *Apparently, most of the initiatives are in the exploratory or initial stage. I sense the shapes of the new landscapes for the insurance and takaful services would not materialise within the next two years. Collation of deliberative details must be at hand first before setting for consolidation. Due process takes time. And the Government must ensure to secure the buy-in of all relevant stakeholders, especially the community’s participation, for the intended future landscapes to be successfully built.
FOOTNOTE: My commentary is based on information extracted from various sources. It is left to you to check your own sources for veracity of the facts contained in this sharing. Please note my personal opinions should not be taken as guarantee of future events. You are free to counter-comment if ever you feel some points are not plausible. My anticipations are also on the premise that no change in both political and economic environment takes place till 2020.
Best Regards to all.
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