Building a fortress

The Star Online -- WHEN Dutch national Hugo van Vledder came on board insurance company Mayban Fortis Holdings Bhd two and a half years ago he knew the odds were against him.

At that point, the Malaysian insurance sector was well on its way to a major over-haul. (Since the time the Financial Masterplan was introduced in 2001 some 50% of the guidelines had been implemented – and more in the pipelines.)

Apart from the convergency of services, Vledder also had to contend with the evolution in the financial landscape, which witnessed a shift in customers’ preference, the emergence of more complex products and increasing diversity in delivery channels.

Then there was the untapped potential of bancassurance; even though growth of bancassurance registered an encouraging trend, it is only driven by a small number of banking groups.

Generally, bank-backed insurance companies have the added advantage of being able to tap a ready pool of customers to grow the bancassurance segment. Another area bursting with potential is Takaful insurance.

Tapping potential

So, it is no surprise that Vledder, as the new acting CEO at Etiqa, says the company is going to play a huge role in both these areas.

“When Etiqa was launched on Nov 15 last year, we promised to revolutionise the domestic insurance and takaful market through our core brand essence – which is humanising insurance.”

Etiqa, the brand entity is the result of the integration of five successful domestic operators under the Mayban Fortis grouping – Mayban General, Mayban Life, Mayban Takaful, Malaysia National Insurance and Takaful Nasional.

Mayban Fortis was formed in 2001 when Fortis International NV, one of Europe’s largest financial services group acquired 30% in Malayan Banking Bhd insurance business.

Under BNM’s new liberalised operating environment, the industry is allowed to have strategic partnerships which allows equity participation from international players of up to 49% – in order to enable local insurers to leverage on the experience and financial capabilities of the foreign partner and this would allow them to grow in size.

For the financial year 2007 (FY07), the gross premium written by Mayban Fortis stood at RM4bil, making it the second largest insurer in Malaysia, with a profit before tax of RM313.5mil.

For FY06 gross premiums were RM3.5bil while profit before tax stood at RM262.6mil.

“I am satisfied for now, after the initial hard work”, but Vledder is not resting in his laurels either.

In a candid up and personal interview with BizWeek, Vledder shares some of his aspirations in the new playing field of Malaysia’s insurance sector:

Bizweek: Does the prospect for the local insurance industry still look good despite record crude prices and higher global inflationary pressures?

Vledder: The increase in oil and food prices is quite similar to the phenomena in the 1970s, where there was a period of stagflation.

What I feel is this will not affect the insurance industry a whole lot, as it is independent of the current economic cycle.

People are savvy these days, they do think about their future, and insurance does help to mitigate inflationary pressures.

Let me put it this way – insurance is a necessary evil, not pleasant to deal with but important.

What’s in store for Etiqa?

My plans are two-fold.

I want EtiQa to become the national insurance champion and I want to double Etiqa’s profitability.

Both of these objectives will be met by latest next year, if all goes well.

Our three key words in branding Etiqa is accessibility, human touch and hassle-free.

We are looking at different channels of distribution, new products and also regional expansion in achieving our goals.

Branding is very important. We have had on-going advertising campaigns to build the Etiqa brand name. (One such publicity blitz is the current advertisements placed at the Bangsar Putra LRT station).

I am happy to note our branding exercise has worked so far – especially after the re-branding exercise. Within the last five months since we have introduced the Etiqa brand name, our survey reveals people have 40% brand awareness, which is good for a start.

The potential of Takaful insurance is enormous – it is expected to grow to over US$15bil by 2015 from US$2bil currently.

As you may be aware Takaful insurance currently stands about 7% of the insurance sector.

However there is a huge growth potential, where growth is about 20% on an annualised basis. Malaysia is already the market leader in Takaful.

Worldwide there is also a surge in Islamic financial instruments, especially in the Middle East.

Etiqa is in a unique position to tap into this opportunity, as we are a balanced player – neither a conventional insurance company with Takaful operations on the side nor vice-versa.

Do you plan to increase the number of agents as a personal selling tool or depend on other modes such as web-based marketing?

Bancassurance is new way of targeting Internet savvy customers.

But as you may be aware the insurance sector is a highly consumer-touch industry, and agents do play an important part. Currently about 46% of the overall insurance sector is served by agents, and we will play our part by strengthening this distribution channel. Currently Etiqa’s agency workforce stands at 14,000.

There are new entrants like Tunemoney.com which are offering insurance on a low cost model. Do you regard this as threat?

No! I certainly do not view them as a threat but an addition to the market. We too are not bound by the traditional channels and will look into various ways to excite our customers.

I always believe in accessibility – being there at the right time for our customers.

Two examples that come to mind are with Malaysia Airlines and Touch & Go. We are currently selling travel insurance via the MAS website and we have co-branded with the later, giving holders of Touch & Go members additional benefits when they top-up their cards.

We will be introducing a third way but I cannot disclose it at this moment.

The current buzzword in the insurance industry is risk-based capital (RBC) framework. What you think?

A risk-based capital framework will definitely bring changes to the industry. There will be some changes instituted (by Bank Negara) early next year and this will impact the positioning and pricing of different types of insurance products – i.e. more investment linked instruments, where part of the risk will transferred to the customer.

I believe there will be a level playing field in this sector, similar to what we see in the banking sector currently.

We have a good working relationship with Bank Negara and meet them on a regular basis to discuss ways that will continuously ensure RBC is market-driven to benefit consumers and not burden them.