An investment-linked product has unique features, whereby premiums/takaful contributions paid by a policy owner/takaful participant are invested in investment-linked fund(s) offered by the licensed person, and this investment is used to fund the coverage of the policy owner’s/takaful participant’s insurance/takaful protection and other fees and charges related to such investment-linked policy/takaful certificate. Flexibilities of the investment-linked policy/takaful certificate which are provided to policy owners/takaful participants may include the following:
(a) switching between investment funds based on their risk appetite and financial needs;
(b) topping-up investments, making partial withdrawals and/or taking premium/takaful contribution holidays; and
(c) varying their insurance/takaful coverage as their protection needs or financial circumstances change, by adding or removing extensions of cover.
Due to these unique features, policy owners/takaful participants bear both the upside and downside of the investment risks, and the long-term persistency of their investment-linked products can be affected by investment risks and the flexibilities accorded to such investment-linked products. Therefore, it is critical for a licensed person to maintain high standards of governance in the management of its investment-linked business and to uphold high conduct and transparency standards in the sales, marketing and disclosure of information relating to investment-linked products, at all times, to aid informed decision-making by policy owners/takaful participants.
The principal objective of this policy document is to ensure that licensed persons provide fair treatment to policy owners/takaful participants in preserving the value of the policy owners’/takaful participants’ investment-linked policy/takaful certificates. Therefore, this policy document stipulates requirements on licensed persons that are aimed to achieve the following:
(a) promote and maintain high corporate governance and professionalism in the administration of investment-linked business;
(b) ensure professional and proper conduct in the sales and marketing of investment-linked products; and
(c) enhance product transparency and disclosure to protect the interests of policy owners/takaful participants.
To achieve the above objectives, this policy document sets out requirements on the following:
(a) approval to carry on investment-linked business;
(b) management of investment-linked funds;
(c) product design;
(d) fees, charges and expenses;
(e) disclosure;
(f) investment; and
(g) valuation of asset and liabilities of investment-linked funds.
The Bank has carefully considered the feedback obtained during the consultation period of the Life Insurance and Family Takaful Framework (LIFE Framework), and followed up with additional industry consultation to understand renewed concerns by the industry. This has led to—
(a) the issuance of specification letters by the Bank to licensed persons to communicate critical enhancements preceding the full implementation of this policy document; and
(b) a phased implementation of the requirements in this policy document for investment-linked business to allow sufficient time for licensed persons to realign their business strategies and operational practices, including system enhancements, to comply with the requirements.
This policy document stipulates key changes in the following areas:
(a) implementation of Minimum Allocation Rates (MAR) as per the LIFE Framework to protect the account value of policy owners/takaful participants;
(b) introduction of standards for sustainability tests to ensure proper management of long-term persistency of investment-linked policy/takaful certificates; and
(c) enhancements to the product illustration format.
This document belongs to Bank Negara Malaysia (BNM). Full access to the original source is available here: https://www.bnm.gov.my/banking-islamic-banking
