Insurers: Pension plans vital

CEO Outlook 2004

Today, we feature the CEOs in the life insurance industry. 

They are Alex Foong Soo Hah of Great Eastern Life Assurance (M) Bhd, Tan Beng Wah of Asia Life (M) Bhd, Khor Hock Seng of John Hancock Life Insurance (M) Bhd, and K.H. Chia of Hong Leong Assurance Bhd, who is also president of the Life Insurance Association of Malaysia (Liam). 

The recent public uproar over a proposal by the Employees Provident Fund to stagger withdrawals by EPF contributors when they reach the age of 55 highlights a growing social issue in Malaysia: the great majority of Malaysians who retire do not have sufficient savings to ensure their present lifestyle. 

This is where the life insurance industry feels the government should look into this problem as a matter of priority. 

The life insurance industry is ready to offer private pension schemes, but says the tax incentives are not there. In Western countries, governments offer generous tax incentives for their citizens to take up private pension schemes. 

Alex Foong

Alex Foong Soo Hah 

Chief executive officer 

Great Eastern Life Assurance (M) Bhd 

Prospects for 2004? 

The prospects look favourable going into financial year (FY) 2004, with gross domestic product (GDP) growth projected at 6% versus 4% in late FY2003. 

We noticed that since mid-2003 loan growth has not only been positive but broad-based, including loans to small- and medium-sized enterprises. Non-performing loans have already peaked and, moving forward, we are confident that the intermediation channels would continue to provide the necessary support for the economy. 


Challenges for 2004? 

While the prospects look good, we must not be complacent but continue to enhance our competitiveness over and above that of our direct global competitors. Our negative export numbers for the past quarter appear to be at odds with our neighbours' and could be a reflection of data capturing. We are, however, confident that the synchronised global recovery would inevitably pull our exports upward. 

We need to continue our emphasis on the private sector to lift the share of its contribution from 30% of GDP in FY2003 to 50% or more as in the mid-1990s. This applies to both foreign and domestic investments. We need to develop our own niches whether in agricultural, oil and gas, or manufacturing so that domestic investment can counteract the pull of foreign direct investments (FDIs) away from Malaysia to China and India. 


Outlook for the financial sector next year? 

The financial sector looks healthy, with all loan indicators showing sustainable expansion. We have positive numbers for applications, approvals and disbursements. The opportunity for the capital markets also looks good whether one is talking about equity or fixed income facilities. 

Bank Negara recently allowed an increase in credit facilities for insurers from 40% to 50% from January 2004, and this demand should be more than enough to meet supplies coming to the market. 

On the other hand, the current low interest rate environment is posing a big challenge to the life insurance industry. Life insurers – with assets of more than RM50bil in Malaysia – have to continue to search for high-yield assets to deliver returns that meet policyholders’ expectations. 

While the recent gradual increase in bond yield has eased the pressure, the interest rate level is still far below that reached in the pre-financial crisis years. The recovery in the equities market has also helped. But in the long run for premium and bonus rates to be sustainable, insurance companies rely on higher yield from their fixed income portfolio. 

With the continuing low interest rate environment, we foresee further strong demand for single premium fixed deposit type of insurance products. 

While insurance companies are innovative and are addressing the gap in the savings market with this type of products, they need to be cautious by making sure that they have proper matching assets, monitor their total risk exposure and set aside enough capital for the risks taken. 

Without proper risk management, companies may get into unnecessary trouble when the situation takes a turn. 

With the increased consumer awareness of medical cost inflation, medical insurance products are expected to enjoy high growth rate in 2004. A private pension market will emerge, pushing the insurance industry to a new level of growth once the unfavourable tax treatment is removed by the government. 


Your company’s focus and outlook for 2004? 

We expect 2004 to be another good year for Great Eastern. There are several contributory factors: the forecast economic growth for 2004 is stronger than for 2003 as Malaysia benefits from a general global economic recovery. This will translate to higher disposable income and greater consumer spending. 

Going by experience, the life insurance industry normally grows at a rate that is two to three times the growth rate of GDP. There is also still a lot of potential for the life insurance market as the current penetration rate of 33% is lower than those in the more developed Asian economies. 

This means that given the right products and marketing strategies, sales will be greater in 2004 compared with 2003. We believe that with our strong brand name, a full range of competitive products and strong distribution channels, we should see a growth rate of at least 20% next year. 

The strong performance of our investment-linked products, which grew by more than 200% in 2003, is also expected to continue to grow and is likely to hit triple-digit growth. 

Consumer awareness of the importance of financial planning to meet financial goals is on the rise, and in line with our corporate aspiration to be the choice financial services provider, Great Eastern will intensify training for our agency force in financial planning. 

We will continue to be innovative and proactive in coming up with financial products that meet consumers' needs. Special focus will be on largely untapped markets, such as bumiputras and retirees. 

1) Education is the key to any nation building and continued growth, and Malaysia is no different. The English language needs stronger emphasis to complement our endeavours in science and mathematics. 

Malaysia needs to move up the value-added economic ladder. We will find it difficult to compete in the global arena if we continue to rely on labour-intensive industries, as competition for such foreign direct investments (FDIs) will favour China, India, Vietnam, and etc., over Malaysia. 

Thus, the focus on education and to ensure our labour force is well educated will enable Malaysia to attract FDIs in the information technology and biotechnology fields. Policies in the intensive industries to higher value-based industries must be continued. 

2) The delivery system in the public service needs to be further improved so that resources can be better used, rather than creating the waiting time as usually complained about in the media. This improvement in the delivery system can only but help the image of the public sector, and improve our outlook in the eyes of the outside world. 

3) The issue of revising the ringgit peg has surfaced time and again. With the continuing weakening of the US dollar, which puts Malaysia in a competitive position compared with some neighbouring countries, it is high time for Malaysia to consider re-evaluating the position. The pros and cons will obviously need to be considered before a decision is made. 

4) The ageing population of Malaysia, although not as serious as in some developed countries, is not something that can be taken lightly. 

Under the current arrangement, most people are covered by either EPF or government pension schemes. However, there is also a big group of self-employed people who are without proper retirement plan in place. 

Even for the first group who are under EPF or government schemes, it has already been proven that the coverage is inadequate. 

One of the main contributory factors that impede development of private pension schemes in the insurance industry is the unfavourable tax treatment. 

Not only do this sort of schemes not attract tax incentives, which is a common success factor in similar schemes overseas, but they are also currently being taxed at 8%, compared with other savings schemes that accumulate at zero tax rate. 

As funding for retirement benefits can become a costly social problem, if not properly planned well ahead, I believe the government will put priority on this issue in the near future. 

K.H. Chia

K.H. Chia 

Chief executive officer 

Hong Leong Assurance Bhd and 

President, Life Insurance Association Malaysia 

Challenges and prospects for Malaysia's economy in 2004? 

In my opinion, there will be a few challenges. First, China poses the biggest threat to our competitive advantage and we will have to urgently transform our economic base by bringing value-added technology to sectors such as plantation and manufacturing with the aim of being an export supplier of specialist components and intermediate goods to China. 

By developing our economic base we should concentrate on niche markets such as Islamic financial product and services such as takaful

Second, although the global economy led by the US is recovering, there are risks of a sharp and disorderly decline in the greenback, which could lead to higher global interest rates, thus undermining global growth. 

Finally, protectionist issues such as trade war between China and the United States and event risks such as terror attacks or an unexpected outbreak of fatal diseases, such as SARS, are some of the factors that cannot be discounted. 

Nevertheless, we are confident that growth of between 5% and 6% can be achieved. Currently, we are blessed with a robust plantation sector buoyed by higher palm oil prices and a pick-up in the export market led by renewed signs of increased capital spending in America. 

Furthermore, increased liquidity boosted by low interest rates could continue to spur the stock market higher. This could have spill-over effects on consumer spending and the property market. 


Outlook for the industry in 2004? 

The outlook for Malaysia's financial sector next year is very bright and strong. Having survived the financial crisis, and having undergone a restructuring, but more importantly having learnt the lessons from the financial crisis, the financial sector is now well prepared to cope with any crisis that may come its way in the future. 

It is fortunate that Malaysia is still insulated from the firestorms of global financial crisis with whatever remains of its capital controls measures. The capital controls are the best weapon Malaysia has had in its fight against the financial crisis. Despite the criticisms, the measures worked. 

We see great opportunities for the financial sector for the years to come, as the sector matures, with the provision of wider and better services to consumers through the use of technology, which will not only lowers the cost of doing business but also brings considerable convenience to the masses. 


Focus of your company/group next year? 

The insurance industry will no doubt remain increasingly competitive. In line with HLA’s brand mission – building lifelong relationships by making living easier through friendlier and more accessible insurance so that life can be celebrated with peace of mind – HLA will continue to strive to meet these challenges by fixing our focus on customer service and developing first-to-market strategies in order to remain competitive and sustain our business. 

Distribution and sales network will be further expanded to increase market share. This will be achieved through our intensive agency force recruitment and training programmes. Bancassurance will be the additional mode of distribution channel for the company. 

As a member of the Hong Leong Group Malaysia, HLA will leverage on the strength and network of Hong Leong Bank by aggressively promoting bancassurance products and services to the bank’s customers. 

As for back-office operations, HLA will continue to improve work systems and processes to increase productivity and cost efficiency. 


Do you expect 2004 to be better or worse, compared with 2003? Why? 

For our last financial year ended June 30, growth of the overall company was relatively good. Next year will be another highly challenging one, with our competitors geared towards meeting market demands and needs with differentiating products and services. 

We intend to remain agile to sustain and continue to grow the business by staying focused on our business strategies. With the increasing availability of information about the industry through various consumer education programmes, customers will be more discerning and demanding. 

However, with only 30% of the population insured, the industry still has potential and we will continue to rush towards getting a bigger piece of the pie. 


What should be the priorities of Prime Minister Datuk Seri Abdullah Badawi? 

For the industry, on behalf of the Life Insurance Association of Malaysia (Liam), we have one wish. we have always maintained that Malaysians do not have sufficient funds in their savings – be it their own or those in the Employees Provident Fund or any other form of funds that they may have – to allow them to continue to enjoy the same lifestyle that they were enjoying while they were actively working. 

Liam has, therefore, for a few years now, been recommending to the government that it set up a national pension scheme to help those who have or are retiring from active work. The scheme should supplement whatever funds the individual has saved for his retirement. It is not to replace the existing schemes. 

Liam believes that it is of utmost importance that such a pension scheme be given top priority in view of the fact that more and more Malaysians are reaching the age of retirement; and due to advances in medical sciences and technology, the lifespan of Malaysians has now been lengthened considerably. 

New medical technology has helped to detect illness early, thus enabling the individual to seek medical treatment for the illness early. 

Times have changed and it is essential that the government sees a strong need to ensure that its retired citizens enjoy the same or a better lifestyle in their twilight years. This is a social responsibility that the government cannot ignore, and for which the life insurance industry is most willing to help to the fullest. 

This should be the top priority of our new Prime Minister for the insurance industry. 

Tan Beng Hwa

Tan Beng Wah 

Chief executive officer 

Asia Life (M) Bhd 

Challenges and prospects for Malaysia's economy in 2004? 

As a result of a generally bolstered global business confidence, Malaysia's economy expanded by 5.1% in the third quarter, which gives good reason to believe that we will exceed the full-year forecast for 4.5% growth. The forecast for next year is even more optimistic, placing growth at 5.5%–6%.. 

Even more heartening is the growth of the domestic services sector. 

Business confidence in the United States has increased substantially as the third-quarter gross domestic product growth recorded a blistering 7.2%. This has hastened capital expenditure plans. However, employment figures have not improved significantly in the face of productivity increases and globalisation in businesses. Concerns over the large and continuously growing deficits in trade spending is a threat that could affect the global economy.At the same time, there have been increases in productivity and in the pace and extent of globalisation. However, employment figures have not improved significantly. This presents a challenge to overcome in 2004. 

Outlook for the industry in 2004? 

The financial landscape is changing very quickly and there is intense competition for international capital, hence, we need to speed up the development of our capital market. Malaysia also has to face up to the reality of reduced flow of foreign direct investment. 

While we need to sustain domestic growth and improve external trade, we also need to continue to improve investor confidence, particularly in our stock market. 

One interesting aspect of our role in the global economy is developing Malaysia as a regional hub for Islamic banking. If we succeed in this niche market, we will definitely enjoy a competitive advantage. 


Focus of your company/group next year? 

To maintain our edge in a more competitive and consumer-driven insurance industry, we are focusing on market research – identifying growth areas and the concerns that drive these. Our research shows great market potential, in order of priority, in the following areas: education, retirement, protection (particularly in health, travel and business continuity) and wealth accumulation. 

At the same time, we will be intensifying investment in our people through training and development, plus we plan to expand our market reach through expanding our agency distribution and developing technologically superior channels of distribution. 

Finally, we will be increasing our brand awareness through the quality of our services and products, as well as advertising spending and public relations activities. 

Do you expect 2004 to be better or worse than 2003? Why? 

Although we achieved record growth of over 50% in new business premiums in our core individual life business up to the end of this October, we expect to perform better in 2004. We expect to cross the half-billion mark in total revenue, with a total net premium growth of about 15% to about RM420mil, the balance being from investment and other income. 

After three years of consolidation, our productivity has almost doubled and we now boast a comprehensive range of products, which address key market needs with innovative features. This will be complemented by a better quality of service delivery by an expanded agency force. 

Our asset size has grown – to over RM2bil at the end of 2002 – and we expect this to continue to grow. We are fully confident of our financial strength and stability, which has been rated A+ by Standard and Poor’s. 

What should be the priorities of Prime Minister Datuk Seri Abdullah Badawi? 

The Prime Minister has 30 to 40 years of political administrative experience, which makes him an excellent administrator and manager. These are very positive qualities that the country needs in its leader. 

The country has already seen stellar growth. Now is the time for consolidation of this drastic change, fine-tuning advances made with appropriate strategies and ensuring follow-through in many instances. 

Malaysia – and its citizens – is very fortunate in the sense that the country is blessed with natural resources. This has led to a kind of complacency with regard to focused growth. It is very tempting, when something does not work out, to deflect one’s focus into another area. 

This is one of the challenges the PM faces. He has to make sure we maintain our focus on areas that matter. 

Another challenge would be to try and satisfy the different segments of the populace in view of the more diverse and developed economic landscape. In short, he will have to manage the country’s growth and satisfy the different needs of different segments of the populace. 

Khor Hock Seng

Khor Hock Seng 

President/chief executive officer 

John Hancock Life Insurance (M) Bhd 


Challenges and prospects for Malaysia's economy in 2004? 

Malaysia's economy has never been so dependent on exports for a stronger economic resurgence now than in more than a decade. 

The domestic sector used to have three engines of growth: consumer spending, private investment, and government spending. But today we are heavily dependent on consumer spending. Private investment has been weak and government spending is limited by budget deficits. That is why we have to count on exports to fuel the resurgence. 

Fortunately, the outlook for global economy and, in particular the US economy, appears to be brighter and that should help improve exports. The challenge here is for this trend to sustain and accelerate in 2004. 

Having said that, Malaysia's economy needs to find new sources of growth.  

Our dependency on exports is risky as we don’t have total control over our exports and the external environment. So, new domestic sources of growth are imperative should the external demand turn out weaker than expected. 

Potential areas are tourism, education, healthcare, and information and communications technology, to name a few. 

Outlook for 2004? 

The insurance industry is going through tremendous change to keep pace with current consumer needs and trends, which bodes well for the future. Bank Negara's Financial Sector Masterplan (FSM), introduced in 2001, has laid down the guidelines for a more dynamic and resilient insurance environment and we will see new initiatives put in place to achieve the FSM objectives. 

With the nationwide programme for consumer awareness of insurance in full swing, we can expect the heightened awareness to translate to positive growth for the industry. 


Focus of your company/group next year? 

In 2004, John Hancock’s programmes will continue to be geared towards improving the productivity of our staff and agency force in tandem with the changes that are taking place within the industry. It is key that we contain our costs and maintain our competitiveness in order that we are able to go on offering value-for-money products to our customers. 

We also need to realign the business practices of our agency force to be in line with the financial needs of today’s consumers and their purchasing trends, as well as the evolution of the insurance environment. 

Next year will also see us focusing on developing our bancassurance channel as a means to reach more customers. 


Do you expect 2004 to be better or worse, compared with 2003? 

John Hancock has been on the growth track since 2001 and we expect to maintain this in 2004. As far as our business plans are concerned, 2004 will be a better year than 2003 in terms of new business growth. 

The improving economy of the country will provide a tremendous boost for growth, as experience has shown that an improving economy is a stimulus for improving life insurance performance. And, the increased awareness of the importance of insurance through government-initiated consumer education programme will be a tremendous asset to us. 

With positive external factors coupled with our multi-distribution approach, as well as exciting new products that will be launched in 2004, we are confident of achieving our 2004 business goals. 


What should be the priorities Prime Minister Datuk Seri Abdullah Badawi? 

There is a lot of talk about elections and the Prime Minister should clear this uncertainty by holding elections. It is also important for the PM to lay the groundwork to formulate effective policies to steer the economy forward. 

He should take the lead in seeking new sources of growth to continue our progress to be a developed nation. He needs to formulate a strategy for building up critical mass in these new areas while either maintaining or phasing out the input from traditional growth areas. 

Lastly, the Prime Minister will need to drive the message to improve efficiency and raise productivity of the nation's workforce to remain economically competitive. 

CEO Outlook 2004

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