Agile Financial Times May09 Edition

Agile

FINANCIAL TIMES

Investment Management Outlook Middle East and Africa

CUSTOMER SPOTLIGHT

Increasing Market Share for Apollo DKV PERSPECTIVE

Islamic Insurance in the Middle East ARTICLE

The Aftermath of the Economic Crisis

May 2009

May 2009

Editor’s Note Greetings! In our quest to serve those who conserve capital and grow wealth, we are pleased to provide our views on the investment and wealth management outlook in the Middle East & Africa and a perspective on Takaful Insurance in the Middle East. As I write, we are at the Annual BancAssurance Conference in Vienna, Austria to exchange views with industry leaders on this growing channel. Agile FT is sponsoring the Conference and presenting a paper on ‘Making BancAssurance Agile’! What is most exciting about BancAssurance is how it brings bankers and insurers together and this assembly is truly a meeting of minds as all sides unanimously agree on the role of technology as a key enabler. Our AGILIS BancAssurance platform is being so well received that we decided to feature the same in this month’s Solution Spotlight. We are passionate about innovation and feel a sense of great pride when our clients use our technology to innovate a business model. Apollo-DKV Health Insurance Company shares its experience on the use of Agilis and how they were able to leverage technology to increase their sales through portals like MakeMyTrip.com. We invite you to read Vikas Tandon’s perspective on Customer Privacy in the face of increasing Anti-Money Laundering scrutiny. Vikas Tandon is the Joint General Manager and Money Laundering Reporting Officer at ICICI Bank. A new and exciting addition this month is a contribution from our Chairman, Andrew Krieger, a well known luminary from the financial world. He shares an insider’s view on the aftermath of the economic crisis. You will get a sense of déjà vu as we are taken down memory lane right from the Great Depression and are told that a cheery investment outlook awaits us in the near future. We hope that you enjoy this edition and continue to write in with your feedback. Here’s wishing everybody a great month ahead.

CONTENTS CUSTOMER SPOTLIGHT

Increasing Market Share for Apollo DKV 4 COVER STORY

Investment Management Outlook: ME and Africa 7 ARTICLE

The Aftermath of the Economic Crisis

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INSIGHT

Customer Privacy Regulation

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PERSPECTIVE

Islamic Insurance in the Middle East 17 SOLUTION SPOTLIGHT

AGILIS Bancassurance 20 Be Agile! Shefali Khera Chief Marketing Officer Write to us at [email protected]

PARTNER SPOTLIGHT

Expansion in SubSaharan Africa

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CUSTOMER SPOTLIGHT

Increasing Market Share for Apollo DKV Apollo DKV Health Insurance Company, the association between Apollo Group and Deutsche Krankenversicherung (DKV) AG, is a strategic alliance to meet common goals in healthcare and health insurance. It complements Apollo’s philosophy of ‘prevention and wellness’ and DKV’s dedicated mission of ‘providing affordable and innovative health insurance solutions’.

This meeting of minds has given birth to a new era in health insurance in India, bringing with it the double protection of preventive health added to insurance cover. It is a venture to bring in a paradigm shift in health insurance from ‘post care’ to ‘prevention and wellness’. This ultimately is the core of the Apollo DKV’s unique brand positioning - ‘Lets Stay Healthy’. Towards this attempt, it has implemented AGILIS, an integrated web-based software offered by Agile FT. Through AGILIS, Apollo DKV has been able to sign up new customers thereby gaining incremental revenue. It has also achieved fast turn-around-time, a critical success factor in the travel insurance industry. Apollo DKV has provided Indian domestic/international travellers a powerful on-line tool by which they can purchase travel insurance in a variety of ways. Corporate customers can issue policies at their end from the corporate portal. Travellers can purchase their insurance policies either from travel agents who have been given access to AGILIS or from travel portals like MakeMyTrip.com. Branch office employees of Apollo DKV at branch office can issue insurance policies to walk in customers from the employee portal. In all cases, the insurance policy is immediately processed, can be printed and made available to the customer in real time. Health insurance is a highly competitive line of business since it is a part of every general insurance company’s portfolio. Travel insurance forms an integral part of the health insurance portfolio. Travel is a high-growth segment with international leisure travel expected to grow three times while the domestic travel market is currently growing at about 35%. The value of the Indian travel insurance industry is estimated to be $236 million in 2009, according

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CUSTOMER SPOTLIGHT

to Euromonitor International. Domestic and international air travellers typically buy insurance cover after they have purchased their travel tickets. This is usually at the proverbial last minute when they have very little time to seek an agent and buy travel insurance. Even if they find a travel agent or visit a general insurance company, it normally takes a few hours before the policy document is provided.

Krishnan Ramachandran, Chief Operating Officer, Apollo DKV, shares his views exclusively with Agile Financial Times.

In addition, the application forms are time consuming with details such as medical history, passport and other identification details to be filled. This affects the turnaround-time, a factor that is critical for the success of the business, as well as the convenience of purchasing the insurance cover. Background

In its endeavour to become a first-choice partner in the health care sector, Apollo DKV is determined to increasingly automate processes, reduce human intervention and increase quality and speed. Apollo DKV currently offers several insurance plans - Easy Health Insurance, Personal Accident Insurance and Easy Travel Insurance. It chose Agile FT as its partner to automate its Easy Travel Insurance Plan, a Short-Term travel insurance plan, with the main target population being young people who are very familiar with the existing travel insurance schemes available in the market. The Individual Travel Insurance Plan covers an individual of age between 6 months up to 70 years, against any medical or non-medical emergency while travelling and is valid for a specific number of days. Apollo DKV offers the Easy Travel Insurance Plan in four different ways:


A secure travel insurance portal through which corporate customers can issue their own policies. The issuing company has to maintain a deposit with Apollo DKV, which gets debited every time a new policy is issued.




Through the Agents Portal for travel agents.




Through travel ticketing websites like MakeMyTrip.com, where travellers can buy the insurance policy along with the air ticket by just click-checking a box.




Through branches which provide service to walk-in customers.

The policy is valid either for the duration of the round trip travel or 30 days from the date of booking. The decision to use travel web sites as a distribution channel was to provide an extended solution to airline clients. This has given the company a new dimension to the already existing on-line airline booking system.

What is your vision for Apollo DKV? Apollo DKV was licensed by the regulator in August 2007 and launched its first product in November 2007 on the retail side. We now offer a bucket of products in areas such as health, travel and personal accident insurance for both retail and corporate and our goal is to become a health insurer of choice. At Apollo DKV, our core philosophy is ‘manage health’ and our vision is to become a significant player in the health insurance industry, with our value proposition being the ability to combine health care access and delivery. What is the rationale behind the on-line health initiative? Very few insurance companies currently offer on-line health insurance with processes automated from application to policy distribution. By providing this service, we have actually been able to increase the market size of the insurance industry as this user-friendly facility has roped in many first-time customers, many of whom have now made it a practice to purchase insurance on-line whenever they travel, which is something they would not have thought of earlier. What was the main reason for selecting Agile FT? We chose Agile FT as a partner as they possessed both, the technology expertise as well as people who had a deep knowledge of the insurance industry. Agile FT offered us a blend of technology and domain expertise Without AGILIS we would not have been able to enter into a partnership with MakeMyTrip.com.

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CUSTOMER SPOTLIGHT

While the primary focus of travel agents is on overseas travellers, the focus of MakeMyTrip.com is on domestic as well as international travellers.

not they would like to purchase an insurance policy. It also includes the facility of emailing the policy to the subscriber’s email address.

Supplier Selection

The back end runs a validation engine and checks the information (such as age, length of travel, countries of travel) of the traveller. Most of the information is picked up from the data provided on the tickets and compared to set values. For example, the Easy Travel Insurance Plan is only provided to customers who are less than 70 years old. Anyone at and above the age has to go through the underwriting process by visiting an Apollo DKV office.

During the launch of the Easy Travel Insurance Plan, Apollo DKV had time constraints and was unable to custom-build a solution to cater to the travel insurance product. The company was therefore seeking an ‘off-theshelf ’ product. “We already had a system in place which we customised to suit our business needs. We decided to go for AGILIS since there was no time to add a separate module to the existing one,” says Ravinder Zutshi, Chief Technology Officer, Apollo DKV.

“We chose Agile FT as they possessed both, the technology expertise as well as people who had a deep knowledge of the insurance industry.” - Krishnan Ramachandran Chief Operating Officer Apollo DKV A key differentiator that separates Agile FT from its competitors is its domain knowledge. Apollo DKV selected AGILIS over similar products because of Agile FT’s proven expertise and domain knowledge of the insurance sector. Technology

AGILIS is an integrated on-line IT solution designed to automate all the functions of a general insurance company. It acts as a decision support system for underwriting, claims, reinsurance and accounting and, as a result, directly enhances the business processes of an insurance company. The solution is flexible in terms of defining new or revising existing insurance products and facilitates dynamically altering the process in time with the market conditions. AGILIS has the ability to cater to all classes of the general insurance business. The front end interface is used to provide a choice to travellers booking through MakeMyTrip.com of whether or

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After the validation, the application is passed through a payment gateway, where the payment is extracted from the customer’s credit card. In case of cancellation of a policy, the refund is made to the customer using the same forms, while the final transaction is settled between the travel agents or MakeMyTrip.com and Apollo DKV at the company’s website. Business Benefits

Within a few months of the launch of AGILIS, Apollo DKV received encouraging feedback from travel agents as they found the product easy to use. Their feedback has been that AGILIS is customer friendly, easy to integrate into the existing system, cost-effective and performs well on underwriting and claims. AGILIS also helped Apollo DKV decrease the turn-aroundtime for issuing a policy to 2 minutes as compared to 15 minutes earlier. Purchasing travel insurance was suddenly made very simple for travellers who were earlier used to filling out lengthy application forms. For travellers who fit the policy underwriting criteria, all they have to do is to fill in their personal information on-line and the policy document is sent to their email account, without any human intervention. Apollo DKV garnered significant incremental business with the addition of MakeMyTrip.com as a sales and distribution channel, especially because it was one of the early movers. The unique feature of this channel is that it creates an impulsive buying decision for the travel portal user who can avail an insurance policy by just click-checking a box. Conclusion

Apollo DKV gained significant benefits due to the AGILIS implementation. In addition to simplifying internal processes, using AGILIS also reduced the turn-around-time for the issuance of policies, thereby setting an industry benchmark which few insurance companies have achieved. Being one of the early movers in providing travel insurance policies in real time gave the company a substantial advantage over competition and helped it to increase incremental revenues significantly.

It seems ironical to talk about investment and wealth management, when so many mammoth organisations have collapsed and high net worth individuals (HNIs) have seen their net worth eroded in the span of just a few months. As we all know, the US downturn triggered a global slowdown during the second half of 2007, which quickly spread to the other developed regions as well. At the same time, emerging economies continued to grow, albeit at a slower pace.

Investment Management Outlook Middle East and Africa In early 2008, large US corporations began filing for bankruptcies, which severely impacted their global operations. With mass unemployment across the globe, the scenario worsened in the second half of 2008 and as yet, 2009 does not appear to be doing any better. Countries within the Middle East and Africa were relatively well sheltered during the second half of 2007 largely on account of the then-rising prices of commodities and natural resources. Africa additionally benefited from a liberalised economy attracting higher foreign direct investment (FDI) to propel growth. Wealth creation in both these regions reached record highs. According to a 2008 BCG report on Wealth Management, assets under management (AUM) in Middle East and Africa grew at a rate of 8.6 per cent versus the worldwide growth rate of 4.9 per cent in 2007. The World Wealth Report published by Capgemini and Merrill Lynch in 2008 mentions that the HNI population within Middle East and Africa experienced the highest growth rates of 15.6 per cent and 10 per cent respectively in 2007. Compared to this, the worldwide HNI population in 2007 grew only by 6 per cent in that year. While the financial crisis took its toll on most countries, the impact on emerging

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COVER STORY

nations was especially significant, since they were highly dependent on the US and other developed countries for foreign investments as well as exports. The impact on wealth markets in Middle East and Africa has been quite severe. The Gulf Co-operation Council (GCC) stock markets collectively lost more than $600 billion in market capitalisation during 2008. Local exchanges in Dubai and Egypt were down more than 50 percent in 2008. The wealth erosion across both regions was primarily led by:


Declining commodity prices: In July 2008, crude oil prices declined by almost 70 per cent from a peak of $147 per barrel. The Middle East region with the largest crude oil reserves in the world, had to cut production due to decline in demand. Many mines in Africa closed down operations as the demand for commodities declined significantly. Prices of copper and cobalt dropped to one-third of their peak-2007 prices.




Declining foreign investments: There has been a decline in FDI in these regions owing to the economic slowdown and a current negative outlook towards the region. According to UNCTAD, FDI in the Middle East fell by 21 per cent in 2008, resulting in delays and cancellations of infrastructure projects that were heavily dependent on FDI. In six of the largest countries in North Africa, FDI fell by 5.2 per cent in 2008 to $21.3 billion.




Credit crunch and liquidity pressure: In both Middle East and Africa, the lack of liquidity resulted in a loss of confidence amongst lenders and borrowers. As lenders became more stringent with respect to borrowing norms, the number of loans accessed by the public declined.

Recovery Expected Post-2009

However, the good news is that despite falling growth rates, both regions are widely expected to still keep growing. According to an IMF forecast, the GCC economy is expected to expand by 3.5 per cent in 2009 as compared to 6.8 per cent last year. Another forecast by the World Bank (report on Global Economic Prospects) pegs the regional growth in the Middle East (including GCC and other countries as well) to slow down to 3.9 per cent in 2009 from 5.8 per cent in 2008. The underlying assumption is that commodity prices will definitely not go down further and crude especially is expected to recover to $65-70 per barrel by the end of 2009. Looking beyond 2009, the prospects appear to improve dramatically for these regions. While there is a general consensus on the global economic environment improving in 2010, indications are that the turnaround will be much quicker in Middle East and Africa. A recent MEED (Middle East Events) report titled ‘A Short,

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Sharp Shock’, forecasts a speedy recovery for the Middle East during 2010. According to the report, the price of West Texas Intermediate (WTI), which is a benchmark for oil prices, will hover around approximately $60 per barrel in 2009 and the production of oil will drop by 3 million barrels per day. In 2010, as the demand for oil increases and the

In the absence of a major black swan event, the demand-supply equation is bound to ensure prosperity within these regions. global economy starts to recover, there will be a marginal price recovery of oil, up to $75 per barrel. The report reflects the consensus on a growth decline in 2009 for the GCC countries - GDP growth in 2009 to decline by 20 per cent over to $835 billion from $1.1 trillion in 2008, and the current account surplus to fall to zero as compared to $350 billion in 2008. In 2010, however, the GDP is expected to grow by 20 per cent to over $1 trillion. Implications for Investment Management

The implications of all this for the investment management industry in Middle East and Africa are far-reaching. Growth in wealth is the leading indicator rather the leading driver for the wealth management industry. Therefore, while 2009 will be a watershed year for the industry globally, the key for investment managers will be to maintain competitive positioning to garner growth opportunities on market recovery. There is every reason to believe that the attractiveness of the Middle East and Africa as destinations for wealth management will continue post 2009. The prime reason is the already-existing wealth base, both at the retail level as well as at the sovereign level. The existing reserves of financial assets can be leveraged effectively for fuelling investments in prime projects, especially in infrastructure. For instance, UAE alone has reserves of $350 billion versus obligations of $10 billion in sovereign debt, and $70 billion owed by affiliated companies. The confidence in the African markets is evident from the number of private equity (PE) companies which are continuing to set up shop there. For instance, Kingdom Zephyr Africa Management and Aureos Advisers (both PE players) have announced that they will continue to raise capital for their respective PE funds, as they continue to see

COVER STORY




Growing maturity of investor culture: The investor culture is gaining ground in these regions. Mature investors have a better understanding of the complexities of wealth products and services, which acts a driver for further growth of the investment management industry.

Some of the inherent challenges that countries within these regions face and will have to ultimately overcome to sustain and increase growth, include:

opportunities in the African continent. They expect Africa to recover more quickly than the other emerging countries, as Africa has been one of the fastest growing regions within the emerging economies. As for the Middle East, in the recent past, several international investment outfits (such as ING IM, Insparo Asset Management, Australia’s Macquarie Group among others) have either set up or are in the process of setting up offices in the Middle East.




Scarcity of experienced local finance professionals: Finance professionals are needed for the growth of investment management within these regions. Due to the geopolitical risks in these countries, professionals from developing nations are often unwilling to relocate to the Middle East.




Nascent stage of some African markets: Although the African region opened up its economy to foreign investment and trade in 2007 to an extent (and as a result experienced significant economic growth), it still has a long way to go in relaxing norms that erstwhile did not allow foreign inflows. By doing this the region will attract hefty foreign investments. Further, the turbulent political landscape in various parts of Africa could significantly impede growth.




High expectations of HNI investors: HNIs have become very sophisticated in terms of their financial and investment needs and seek comprehensive wealth management services from trusted advisors. Clients not only expect advice on investments but also expect advisors to be able to understand the larger picture which encompasses personal and professional investment goals. Wealth managers therefore have to gear up to ensure these demands are adequately serviced.

Further, there are several strong fundamental drivers which will help these economies recover and grow:








Diversification of sources of income: The countries within Africa and ME have been investing in other sectors to diversify and reduce dependence on a single commodity or natural resource. For instance, tourism has been a growth sector in the GCC and its share in the GDP is expected to go up further. As these economies diversify, there will be significant growth opportunities which will be tapped by investors. Rapid growth of Islamic finance: Financial services in the Middle East and some parts of Africa will be driven by growth in Islamic finance. Shari’a compliant financial services are expected to grow due to several factors such as high availability of sophisticated Shari’a compliant products, increase in the number of institutions offering these products and the formation of regulatory bodies to provide the necessary regulatory oversight. According to a report by Oliver Wyman, Islamic finance (worldwide), although in its nascent stage, has grown by over 20 per cent over the last few years. Its current assets are estimated to be in the range of $700 billion to $1 trillion. The report estimates these assets to grow to over $1.6 trillion by 2012, with a significant chunk of the contribution expected from the Middle East and Africa. Liberalisation of financial markets: The opening up of both the Middle East and the African markets has spurred growth in these regions. Africa is continually introducing reforms to make the environment business friendly and attractive to foreign investment.

The long-term outlook on commodities, which is a key economic driver in both these regions, is positive. Especially given that the take-up on alternative energy sources is still low, the dependence on non-renewable energy sources will continue to be high. Therefore, in the absence of a major black swan event, the demand-supply equation is bound to ensure prosperity within these regions. According to a Standard and Poor’s survey of fund managers in the Middle East and North Africa, although a continued downward pressure on markets is expected in the short term, fund managers are very positive about the medium to long term outlook for these markets. They expect growth to be driven by domestic investors such as sovereign wealth funds. Further, the increase in investments in infrastructure-related projects will see more foreign capital flowing in. The result of the increase in individual and state-owned wealth will see an increase in demand for investment management.

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ARTICLE

The Aftermath of the Economic Crisis Andrew Krieger Chairman, Agile Financial Technologies Having been violently shoved to the edge of the abyss, the global financial system has gone through an amazing twoyear period. During the summer of 2008, the world’s financial markets were becoming progressively unstable as the magnitude of the balance sheet problems among leading banks, brokerage firms and insurance companies was starting to sink in. One firm after another announced multibillion dollar losses resulting in plummeting investor confidence. The entire system was already in a very vulnerable condition when talk of major liquidity issues at Lehman Brothers started to filter through the market. When it became apparent that Lehman’s problems were real, the U.S. authorities surprisingly decided not to step in and intervene. Their decision was clear -- Lehman was not too big to fail - and on September 15, 2008 Lehman Brothers announced that it would seek Chapter 11 bankruptcy protection. The already unstable markets became uncontrollable. The brewing crisis took on a new dimension once this venerable institution, formed in 1850, was forced to close down. Lehman was a major player in essentially all the global markets and their bankruptcy sent violent shockwaves around the world and brought the global financial system to its knees. Whatever remaining trust banks held for one another evaporated as they worried about what toxic time bombs might lay hidden in their counterparties’ balance sheets. Interbank lending shut down and credit markets froze. Global liquidity dried up and the system was teetering at the edge of a bottomless ravine. The U.S. authorities had made

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a huge blunder and they knew it almost immediately. Leaders of the G20 were then faced with a daunting choice - either sit by idly and watch the demise of the global financial system or take drastic measures to forestall its final death by throwing vast amounts of money at the problem. It was a big gamble, but the leaders didn’t really have much of a choice except to start pumping in money. They needed to try to buy enough time for the world’s biggest financial institutions to get back on their feet and start operating in a more healthy fashion. The gamble seems to be working so far, but the long term ramifications of these measures will last for generations. Therefore it is incumbent on us to understand more fully the consequences of the policy shifts that have taken place. In order to get a handle on the magnitude of the current economic weakness let’s consider some of the following facts. The U.S. economy, far and away the largest in the world, shrank by 6.3% and 6.1% in the last quarter of 2008 and the first quarter of 2009, respectively. These are the worst numbers in over fifty years. U.S. unemployment now stands at 8.5% and is on its way to double-digit levels, but this number grossly understates the true state of affairs. Roughly 5% of the workforce is considered permanently unemployed, which means they are no longer even seeking jobs so they don’t even show up in the statistics. The economy’s weakness has been widespread, with a collapse in consumer demand, manufacturing, inventories, and home sales all showing up in the data. Optimists look at the drop in inventories as a sign that growth will bounce back in the form of increased production when sales demand finally

ARTICLE

picks up. But when will this demand pick up, and how strongly? The pace of the decline in manufacturing, housing, exports, and factory orders is slowing, but the numbers are alarming. Property values continue to drop. In many areas the pace of decline has slowed, but in others, such as New York City, the drop is actually accelerating. Prices in New York City have fallen by about 25% in the past several months and more weakness is predicted. The U.S. is hardly alone in its suffering. Global growth this year will be negative, probably to the tune of 1.5%. Data from Asia is very weak, with exportdependent nations showing the largest drops in export data in over half a century. Japan’s economy, the second largest in the world, will be down approximately 3.3% and China’s growth has slowed sharply despite massive fiscal spending packages. Europe is likewise suffering, and in some instances, it is actually in worse shape than the U.S. Eastern Europe is performing terribly and Western Europe is posting very weak numbers. For example, German GDP is growing at roughly -6%, and Spain’s economy has fallen sharply, showing 17% unemployment today, on the way to 20%+. Banks in Europe are under tremendous pressure and liquidity remains very poor. In the bigger picture, bear in mind that Japan has now suffered through nearly two decades of moribund economic activity and it is only because of their extremely high personal savings and investments that they have been able to cope with this extended economic malaise. This protracted slowdown created a number of “zombie” banks and this is something the U.S. and European authorities desperately want to avoid. On the other hand, while the numbers are bad, they aren’t nearly as catastrophic as those experienced by the U.S. during the Great Depression. From 1929 until 1933 total output in the economy dropped by 42%. Unemployment peaked at roughly 25% and consumer prices dropped by about 25%. Hardship within the U.S. was truly horrible, but the impact extended globally. European economies were weakened for years. The UK economy, for example, didn’t bottom out until 1932, and the French economy didn’t fully crater until 1935. In terms of understanding where we are today, however, we need to bear in mind that most of the economic damage during the Depression was due to severe weakness in the banking system - weakness largely due to the fact that many of these banks were not following sound lending practices and had speculated too heavily in the 1920’s. As overall confidence collapsed, the banks were not spared, and thousands of banks were forced to close. The entire period from 1930 until 1933 was marred by runs on multiple banks. In January, February, and March of 1933 (the months leading up to the inauguration of Franklin D. Roosevelt) the run on the U.S. banks reached shocking proportions. By the time FDR took the oath of office on March 4, 1933, Americans were in a state of panic. Banks were failing every day and people clamored to withdraw their money. Ordinarily they would have accepted paper money in the form of gold certificates, but people feared that the government might resort to printing worthless money to meet the massive withdrawal requests. They didn’t want paper. They wanted gold. To make matters worse, people who had gold certificates rushed to redeem them for real gold. In 1933, the U.S. government defined the dollar as being worth precisely 23.22 grains of gold. Since there are 480 grains to a troy ounce, this works out to about $20.67 per troy ounce. This meant that if you had a $20 gold certificate, you could redeem it for roughly 1 troy ounce of gold. Each certificate bore this solemn statement: “This certifies that there have been deposited in the

Andrew J. Krieger began his meteoric rise on Wall Street at Salomon Brothers in 1984, then at Soros Fund Management, after which he moved to Banker’s Trust in 1986. He holds a BA in Philosophy (Magna Cum Laude, Phi Beta Kappa,1978); MBA in Finance from the University of Pennsylvania; and an MA in South Asian Studies. Andrew has authored the book, “The Money Bazaar” in 1992, and has been a contributing Columnist for Forbes and Forbes Global. He co-chairs the Microcredit Summit Council of Banks and Commercial Financial Institutions and is Founder CEO of IMGE Emergency Relief Fund and MD of Access Capital Management.

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Treasury of the United States Twenty Dollars in Gold Coin payable to the bearer on demand.” There are two promises here: First, the gold is there waiting for you. Second, you’ll get the gold when you demand it. So in March of 1933, thousands of people decided to make the government honor its commitment, but they quickly learned that the Treasury was not standing by its promise. Just two days after his inauguration, President Roosevelt ordered a “bank holiday”, closing all the banks in the country from Monday, March 6 through Thursday, March 9. He proclaimed that there was a “national emergency” caused by “heavy and unwarranted withdrawals of gold and currency” for the purpose of “hoarding.” In this case, “hoarding” simply meant that people wanted to hold on to their own money, but Roosevelt, eager to blame the government’s woes on the people’s vices, used the term “hoarding” to make it seem like evil behavior. After virtually no debate, on March 9 the Senate passed the Emergency Banking Act, which gave the Secretary of the Treasury the power to compel every person and business in the country to relinquish their gold and accept paper currency in exchange. The next day, Roosevelt issued Executive Order No. 6073, forbidding people from sending gold overseas and forbidding banks from paying out gold. This was quite a first week in office, but there was much more to follow. On April 5, Roosevelt issued Executive Order No. 6102 which enabled the government to confiscate everybody’s gold. The order commanded the populous to deliver their gold and gold certificates to the Federal Reserve Bank where they would be paid in paper money. U.S. Citizens could keep up to $100.00 in gold, but anything above that was illegal. Gold had become a controlled substance. Possession was punishable by a fine of up to $10,000 and imprisonment for up to 10 years. Now the only people with a claim to gold in the Treasury were foreigners holding dollars. Roosevelt didn’t want foreigners to be treated any differently, so on January 31, 1934, Roosevelt issued another Executive Order: He declared that one gold dollar of 23.22 grains would immediately be reduced by 59%, to 13.71 grains. Effectively the dollar was devalued by more than 40% and everyone was stuck. It used to cost only $20.67 to get a troy ounce of gold. With the sweep of his pen, it shot up to $35.00 per troy ounce. The U.S. Government passed many laws to address the problems of the Great Depression. One of these, the first Glass-Steagall Act, was passed in February, 1932 in an effort to stop deflation. Glass-Steagall enormously expanded the Federal Reserve’s powers with regard to the rediscounting of various forms of collateral. The second Glass-Steagall Act was passed in 1933 in reaction to the collapse of the American commercial banking system earlier in the year. It was geared to control excessive speculation by U.S. banks and eliminate their participation in the underwriting of securities that caused so many of the problems in the first place. Banking institutions were divided by their types of activities, with commercial banking and investment banking

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being strictly separated from one another. Another reform was the creation of the FDIC, the entity which insures banks deposits in the U.S. The Glass-Steagall Act survived for over sixty six years before it was repealed in 1999. The basic premises underlying the Act are important to consider. Among them is the fact that conflicts of interest characterize the granting of credit (lending) and the use of credit (investing) within the same institution. Conflicts arise when the same institution does both, so the law was designed to prevent potentially abusive practices. In addition, depository institutions are deemed to have great power by virtue of the fact that they are handling other people’s deposits, and this power must be held in check. In particular, it was felt that bank managers must be required to be conservative, prudent, and protective of the customers’ funds. Encouraging - or even allowing - banks to engage in speculative activities could potentially endanger the security of the institution and imperil depositor’s cash. Securities activities can be highly risky and volatile, so the logic was that these activities belonged outside of the banking system. Moreover, there was (and still is) no evidence that banks are particularly good at taking speculative positions and managing risky portfolios, so the separation seemed to be a logical step. Thus, the wall between commercial and investment banks was erected. This separation was challenged may times, but not until the passage of the Gramm-Leach-Blilely Act of 1999 was the Glass Steagall Act repealed. It enabled commercial lenders such as Citigroup, which at that time was the largest U.S. bank by assets, to underwrite and trade instruments such as mortgage-backed securities and collateralized debt obligations and establish so-called structured investment vehicles, or SIV’s, that bought these securities. (These were just the kind of financial instruments Glass Steagall kept away from commercial banks.) The year before the repeal of Glass Steagall, sub-prime loans were just 5% of all mortgage lending activities, but by the time of the crisis in 2008, they had grown to 30% of the total. Although some maintain that the seeds of the recent financial meltdown were sown with the repeal of the Glass-Steagall Act, the real cause is far more complex. The crux of the issue is that improper risk management was prevalent in many of the world’s leading banks. Greedy management and poorly thought out compensation packages that rewarded risky short-term gain drove much of the behavior that led to the global financial system to the brink of disaster. By the time the Bear Stearns mortgage back funds went bankrupt in the summer of 2007, having burned through 100% of their capital, the international banking system had put on the largest leveraged bet in the history of modern society - that the prices in the U.S. housing market in the United States had only one way to go, up. Imprudent lending practices, excessively leveraged balance sheets, overconcentration of risk, inadequate risk management systems, and a host of related issues all contributed to the problem. It is easy to

ARTICLE

blame the problem on regulators, but history is strewn with meltdowns and bubbles. Volatility has occurred for thousands of years, and it is unlikely to stop any time soon. Although there are significant differences between the current environment and the conditions during the Great Depression, there are enough things in common that we need to pay close attention. As noted, both situations stemmed from breakdowns in banks and financial institutions. The recent collapse in the credit markets and the general loss of liquidity in the global system has created huge deflationary pressures. Today’s leaders are keenly aware of the economic and social dangers of deflation and they are using a wide array of tools to remedy the situation. The U.S. alone, in the past two years, has already committed a staggering $12.8 trillion towards the creation of money in one form or another. Yes, that’s right, $12.8 trillion, and that doesn’t include what is still to come. Nor does it include the ongoing costs of debt service that will make this problem increase over time. The magnitude of today’s situation can be better grasped when one considers the scope of this vast wave of monetary creation. Imagine where the economy would be today without the loans, guarantees, financing facilities, and bailouts by the Federal Reserve, the FDIC, and the Treasury, not to mention the measures taken by central banks and governments around the world. Given these numbers, it is clear that the U.S. economy is in shambles, and much house cleaning and restructuring needs to be done. Prior to the credit crisis, the U.S. was already debt-ridden. Domestic savings rates had collapsed from roughly 12% to 0% since 1980. Irresponsible practices by U.S. banks and financial institutions and the subsequent loss of liquidity have now exacerbated what was already a dangerously imbalanced system. The largest financial intermediaries focused far too much on the riskier aspects of their business, rather than tending to their more traditional role of providing liquidity and safekeeping funds.

remember that the $12.8 trillion recent commitment by the U.S. is largely in the form of commitments by the Federal Reserve ($7.76trillion). The balance of the commitments comes from the FDIC ($2 trillion), the Treasury ($2.7 trillion) and HUD ($.3trillion). Although the Fed’s commitments may not hit the nation’s balance sheet in the same way, the risks to the U.S. taxpayers and the potential costs are still very real and very, very large. The picture is going to look a lot worse each year for the foreseeable future as the growing debt burden continues to compound with no reasonable prospects of debt reduction through budget surpluses for the next decade or so. So where do we go from here? First it is clear that this is a very dangerous time. Credit markets are a mess and banks’ balance sheets need to be further healed before lending can resume in a healthy manner. At the same time, the heavy deficit position of the U.S. and many other nations, coupled with dismal growth prospects, makes the deflationary alternative far too dangerous from every perspective because with deflation, every dollar of debt gets proportionately larger. If deflationary pressures take hold, we could very likely head into a frightening state of global social unrest unlike anything the world has seen. The Chairman of the Federal Reserve, Ben Bernanke, is an accomplished scholar on the Great Depression. He is well aware of the broader societal implications of deflation in a debt-ridden society, so he is certainly going to use every available tool to prevent this from happening. This means that we should expect that Bernanke, like his predecessor Alan Greenspan, will err on the side of inflation. (Greenspan was also a scholar on the Great Depression and he too wanted desperately to avoid deflationary developments in the debt-ridden U.S.) Barnake’s willingness

To address this problem the U.S. is taking a gigantic gamble. The reality of persistent trillion dollar deficits has been firmly established, yet nobody has mentioned an exit strategy. To date, no one has challenged Congress on how and when they are planning to repay these gigantic loans. The American taxpayer is about to be crushed by multiple generations worth of debt, yet those same taxpayers had little to do with the creation of the problem. Consider for a moment the adjacent charts, which reflect the total debt in the United States and the public or national debt. The graphs show the national debt skyrocketing from 1980 to 2010 in both nominal terms and as a percentage of GDP (and the situation is only getting worse). As of April 7, 2009, the total U.S. federal debt was $11,152,772,833,835 or about $36,676 per capita. Also,

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ARTICLE

to monetize; i.e. print money, should not be underestimated, and this will have broad implications for the fixed income, equity, foreign exchange, commodity and other markets for many years to come. The enormous ocean of liquidity that Bernanke is creating is held in check right now by a dysfunctional global banking system, but once banks have been recapitalized and credit starts to flow, the liquidity streaming into the mainstream economy will need to be controlled to prevent a tidal wave of cheap funding, which in turn could start the dangerous cycle all over again. This is a balancing act that will require great skill and a lot of luck, because the alternative will be an inflationary surge that will shock many by its speed and force. Offsetting this massive creation of money will be a dizzying set of new regulations, which are inevitable in the aftermath of the U.S. bailout of so many major institutions. The new regulations will be implemented in Europe and Asia and well, so improved risk management tools will be required for most financial institutions, along with improved controls and sound practices. Such upgrades would be wise to implement in any event, but they will probably be required in the new regime. One might ask whether it makes sense to burden banks and financial institutions with new regulations now that the damage has already been done, but this reactive process is simply the way of big government. Regulation will keep the crowd’s speculative impulses under wrap for a while, but eventually the pool of liquidity will make the money-making opportunities too appealing to pass up. Speculative forces will always find a way to express themselves, but regulation will hopefully make banks less active players in the business of excessive risk taking. Economic recovery from the current recession will be neither fast nor powerful. More likely, we should anticipate a stabilizing of the current weakness over the balance of 2009 as the lingering excesses in the system are played out. Growth will start to pick up modestly in 2010, but don’t expect a robust v-shaped recovery. Banks still need to reduce their leverage, and toxic assets on their balance sheets have not yet been fully priced into the market. The IMF estimates that total losses among U.S., European, and Japanese financial institutions will be $4.1trillion (of which $2.5trillion will be in U.S. institutions), which means that more losses are coming and more capital will be required. As noted, only after the banks’ balance sheets are fixed can the economy really start to grow in a healthy sustained fashion. In the meanwhile, we should expect the IMF to take a more active role in the global economy henceforth, by providing funding and much needed discipline to many countries and institutions around the world. Trading and investment opportunities will be fantastic for the next four or five years as the world works through its problems. Volatility in the markets will be high, which suits most traders, and lending opportunities will be almost unlimited. The profit potential from this period will be very high, but we will need to bear in the mind the bigger picture so that we don’t lose sight of the underlying forces and pressures that are driving the policy makers.

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Global Update A quick review of industry news from around the world World’s Largest Islamic Bank: Saudi billionaire Sheikh Saleh Kamel, Chairman of Al Baraka Banking Group, is heading an alliance to launch the world’s biggest Islamic bank before the end of this year, with an initial public offering of $3 billion. The ‘mega bank’ will have an initial capital of $10 billion through a number of initial public offerings and private stock options. Al Baraka is controlled by Saleh Abdullah Kamel who owns a 28.10 percent stake. Saudi conglomerate Dallah Albaraka, founded by Kamel, owns a 42.32 percent stake in the bank. Al Baraka, which has a market capitalisation of $1.46 billion, recently posted full-year net income of $201 million. Overseas Banks in India May Have to Sell Stakes in Local Units: Overseas banks in India may have to sell at least a 26 per cent stake in their local subsidiaries and meet government targets for lending, under proposals made by a joint central bank and finance ministry panel. A committee that included Central Bank Deputy Governor Rakesh Mohan and Economic Affairs Secretary Ashok Chawla released a report stating that foreign banks should list their subsidiaries on Indian stock exchanges, capping their ownership at 74 per cent, and that overseas lenders should meet targets for lending to farmers in line with local banks. The Reserve Bank of India is due to review rules for overseas banks from next month. India, which limits the number of branches that overseas banks can operate and restricts investments abroad by Indian lenders, has mostly avoided the write-downs and losses by global financial firms as the world economy entered a recession. The global credit crisis has helped India’s state-run banks, which account for more than half of the nation’s banking assets, gain market share as depositors shunned private and overseas banks. India’s central bank limits the ability of local lenders to extend credit to high-risk sectors such as real estate, trading in exotic derivatives and expanding overseas.

INSIGHT

Customer Privacy Regulation In conversation with Vikas Tandon, Joint General Manager & MLRO, ICICI Bank

Vikas Tandon, Joint General Manager and Money Laundering Reporting Officer, ICICI Bank, discusses emerging privacy protection concerns and spells out the measures which financial institutions need to adopt to gear up their privacy compliance framework.

Handling data protection and privacy of personally identifiable information has always consumed vast resources. What is the reality behind the rhetoric and how important are the stakes for banks in protecting such information? Stakes are pretty high indeed! Banks generally collect some specific personal information of their customers, like customer identification numbers, income, personal references, employment history etc and they have a legal responsibility to keep that information safe. Concerns over privacy of such personal information exist from several perspectives. In some cases these concerns refer to how data is collected, stored, and associated. In other cases the issue is who is given access to the information. Other issues include whether an individual has any ownership rights to data about him/her, and/or the right to view, verify and challenge that information. All these concerns are critical from a legal and reputational standpoint for any financial institution. Thus stakes are very high with immediate legal and business ramifications. One of the foremost principles of privacy law is ‘If you don’t need it, don’t collect it.’ Why do businesses today ask for so much personal information on their clients? There is nothing wrong with collecting necessary information. A lot of times, the regulatory guidelines insist on obtaining Know Your Customer (KYC) information on specific areas like identity information, tax status, risk

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INSIGHT

appetite etc to assess customer profile, product suitability for the customer and continuously review the customer’s portfolio. That is understandable! However, at times, businesses also collect more information for better customer service and promotion of their product suite across industries they operate in. In such scenarios, one needs to appreciate the regulatory requirements of obtaining customer consent when sharing information across internal units. It should also be ensured that such internal units also respect the privacy obligation in a consistent manner.

impact assessments and corporate management of information at the planning stages of systems, technology development and service offerings with particular emphasis on cross-border transfers, breach incident responses and consent thresholds.

What are the biggest challenges in ensuring customer privacy regulation today?

We must understand that technology is only a means to effectuate the intent behind privacy laws! Accountability for data protection actually rests with the deployers of technology rather than technology providers.

For a long time, privacy has meant baseline legal compliance. Now, the operational sides within the organisations are also seeing the strategic impact of private information. From a legal perspective, privacy is a very rigid idea, while from a business point of view, privacy is a flexible and day-

Financial institutions will have to develop internal controls and policies to ensure compliance with these regulations. Noncompliance can lead to significant fines and penalties and even revocation of business license in extreme cases.

It is widely understood that privacy protection begins and ends with installation of new technology. What responsibility does new technology place upon bank as a deployer?

Data protection laws are typically addressed to responsible users (banks) of technology or ‘data controllers’ as they are often referred to. Having an internal privacy compliance framework is a mandatory regulatory requirement to ensure that financial institutions are providing increased protection to consumer information in their technology databases. In spite of preparedness there is always the probability of a privacy breach. What should be an organisation’s approach in such an event of privacy breach? Privacy breach calls for a privacy breach protocol. Once a privacy breach is detected, the front-line staff should internally report it to senior authorities as early as possible. After initial firefighting, root cause analysis should be undertaken in order to plug the gap that resulted in such a breach. Notification of the breach to impacted customers and regulatory reporting on actions taken are the other steps needed to handle privacy breach. The lessons of a privacy breach incident should be immediately fed into the organisation’s control framework to ensure prevention of such instances in future.

to-day issue. It is an exciting challenge, especially with a discipline that continues to mature. I think the broad spectrum of levels on which privacy is to be protected is the biggest challenge where we will have to rise from privacy protection to privacy management. This clearly goes beyond traditional concepts of privacy and requires an effective integration in the way information technology is developed and used. As a result, financial institutions will have to develop internal controls and policies to ensure compliance with these regulations. Non-compliance can lead to significant fines and penalties and even revocation of business license in extreme cases. Organisations will have to respond to this increasing complexity of law and regulation by emphasising privacy

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Keeping in view the current financial scenario, how do you see privacy initiatives surviving the budget scalpels everyone else is facing? Privacy protection is based on the cognisance that personal information is a strategic asset and hence it needs to be managed from a more strategically central and relevant place in the corporation to optimise its value. In the present and highly commercial consumer age, personal information coupled with rational budget spends has become a precious commodity especially when many financial institutions’ business models thrive on utility of such personal information. Senior management can therefore no longer view data privacy and security as remote risk that can be put off for a better day!

PERSPECTIVE

Islamic Insurance in the Middle East Takaful has recorded significant growth and is all set to grow further. According to estimates by the National Insurance Academy, the global Takaful industry has been growing at 20 per cent compounded annual growth rate, with 2008 global Takaful premiums standing at $7.29 billion, and the market share of Takaful within the Middle East at 30 per cent, i.e. around $ 4.6 billion. Takaful is derived from an Arabic word which means solidarity where a group of participants agree amongst themselves to support one another jointly against a defined loss. It is based on the principles of Ta-awun (mutual assistance) that is Tabarru (voluntary). In a sense, Takaful is similar to conventional co-operative insurance where participants pool their funds together to insure one another.

The emergence of Takaful has its roots in the noncompliance of conventional insurance products to Shari’a principles which has caused an inherent lag in the acceptance of conventional products in the Middle East . Shari’a principles prohibit the support of models that adopt elements of Maysir (excessive risk taking), Gharar (uncertainty, unclear terms in contracts, gambling), Riba (interest)and haram (non-ethical businesses such as gambling & pornography and prohibited items such as pork & alcohol). Thus, Shari’a compliant products based on the principles of Ta-awun and Tabarru have given tremendous impetus to the Middle East insurance market, which is arguably the largest single potential market for Takaful globally. Overcoming Regulatory Issues

The operation of Takaful models, vis-a-vis its conventional counterpart, has several implications on the regulatory aspects of Takaful. Some of these include:


Effective Shari’s governance: The setting up of a Shari’a board is required from a supervisory perspective. This is because the insurer is responsible for ensuring that all aspects of the business are conducted under the principles of the Shari’a, and would require the insurer to present its compliance to the same on a regular basis.




Capital adequacy norms and disclosure: There is a difference in the risk profile between both types of (conventional and Takaful) life insurance. Family Takaful

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PERSPECTIVE

(the Islamic counterpart of life insurance) is based on a defined contribution whereas conventional life insurance is based on a defined benefit that is paid out upon maturity, surrender or death. Hence there are implications for capital adequacy and disclosure to consumers. In case of a deficit in the Takaful fund, there is no norm that advises how this deficit is to be covered i.e. whether it would be taken from investor accounts or through a loan taken by the insurer.


Profit-sharing standards: Determination of the method of calculation of shares of profit/surplus to each investor. There is no set standard on this but it is being followed differently by different insurers.

Developments Within Key Takaful Markets

Bahrain

Except for a few common regulations, those governing the conventional insurance industry globally issued by International Association of Insurance Supervisors (IAIS) do not apply to the Takaful industry. The Islamic counterpart of IAIS is the Islamic Financial Services Board (IFSB) that was set up to provide global standards and guiding principles for the Islamic financial services industry. In December 2008, the IFSB came up with an exposure draft on Guiding Principles on Governance for Takaful Operations which complemented the principles already existing in the conventional insurance industry.




The principles set out by IFSB encompass three points:













Ensuring good governance practices for Takaful-related products  Increase awareness about good governance practices for ensuring the interests of the public.  Provision of relevant guidance and important options to ensure appropriate corporate governance. Safeguarding the interests of all stakeholders  Design a good governance structure to safeguard the interests of all stakeholders  Nurture an environment which can make available large, adequate information based on the substance and relevance of the information. Setting up of a more comprehensive prudential framework for Takaful undertakings  Provision for other relevant standards in the future  Ensure sustainability of Takaful undertakings with sound risk management and solvency

Although these principles are very basic, their implementation will lay a foundation for the future evolution of the Takaful regulatory space and will play the role of a driver for the Takaful industry. Distribution Channels

The most popularly used channel in the Middle East is direct sales with the major contributors of the Takaful fund being

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shareholders themselves. Other commonly used channels are brokers, agents and banks to a certain extent. With brokers focused typically on high value customers, there is a need to have a well-trained force of sales agents as Takaful products are more complex than conventional ones. Also, though BancaTakaful is currently lower in the pecking order of channels, its popularity is increasing rapidly and is poised to become an important channel for the Takaful industry, especially as products get progressively simple and standardised.







The International Takaful Association is being formed and is expected to play an important role in the promotion of the Takaful industry, increase cooperation between members and increase the level of education and awareness of the public about Takaful products. One of the responsibilities of the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) is the development of standards for Takaful. The issuance of an insurance rule book, in 2005, was done by the Bahrain Insurance Association, which was responsible for developing this sector. Bahrain’s insurance legal framework is one of the most established ones in the region, which was confirmed by the Financial Sector Assessment Program (FSAP), a joint venture between IMF and the World Bank.

Saudi Arabia








The Cooperative Insurance Companies Law that came into force in 2003 required all insurance companies to operate under the Shari’a compliant model. The legal framework in the country is in its nascent stage and has a long way to go in terms of design and implementation. The region is in a transitory phase where the implementation of the licensing process is ongoing.

United Arab Emirates





The existence of a dual court system that includes a Shari’a court (responsible for family and religious matters) and a new insurance commission (responsible for setting up standards and policies). Mandatory pre-conditions are required to offer Takaful products such as: - Specification of products and contracts. - Clarity and complete understanding of the implementation process. - The appointment of a Shari’a supervisory board. - Practice of risk management related to Shari’a activity. - Setting up of sound accounting, auditing and regulatory standards.

PERSPECTIVE




Takaful Models Differences between regulation of conventional insurance products and Takaful products lies within the structure of the different Takaful models which are formed so as to ensure Shari’a compliance.

The Dubai International Financial Centre (DIFC) has further contributed to the development of Takaful.

Key Drivers for Takaful in the Middle East

Apart from the fact that the market is currently underinsured, there are other systemic factors which will drive growth of Takaful in the Middle East:

There are four primary models:


Mudharaba: In this model there are two parties in contract - the Takaful operator (TO) and the capital providers. The TO is responsible for the management of the Takaful investments made by the capital providers. The TO brings to the table a set of business skills which he uses for managing the fund. When there is a profit, it is shared between the TO and the capital investors in a pre-decided manner. This model is commonly used in the Asia Pacific region and is typically used for family (life) Takaful products. The Mudharaba model is popularly used for investment purposes.




Wakala: Here the TO company is distinguished from the capital providers and the TO is paid a predetermined fee which is deducted from the contributions made by the capital providers. This fee is related to the level of performance so as to entice the operator into performing better. The surplus belongs to the capital providers and the operator does not have a share in it. This model is widely used in the ME and is popularly used for the risk-sharing/underwriting aspects of Takaful.




Hybrid: A combination of Mudharaba and Wakala models, this involves the payment of a fixed proportional fee (off the total contribution) as well as a part of the profits to the TO. This model has adopted the strengths of both models by using the Mudharaba model for investment activities of the Takaful fund and the Wakala model for underwriting activities.




Waqf: In this model the operations are based on nonprofit where the contributions are 100% provided by investors who are willing to contribute to the less fortunate of the society. This operates as a public foundation. In this case the fund does not belong to any one person and profits or surplus are not distributed to the contributors.

Mandatory Classes of Insurance: Mandatory insurance for automotive and health in the region will act as a major driver for the demand for Takaful products in the region. This will drive the growth of the retail Takaful market. Favourable Demographics: The demographics of the population in the Middle East is very favourable for growth of insurance, especially as a large part of the population is young, leading to short-term demand for life insurance and medium-to-long term demand for other classes of insurance. The population is also growing at a significantly high rate. Privatisation Initiatives of Government Pensions and Programs: The shrinking role of the state in providing pensions will increase the demand for life insurance within the region. Economic Impact of the Crisis: The global economic crisis being faced across geographies today can be principally attributed to excessive risk taking, greed and unethical practices. Takaful insurance companies and Islamic financial institutions would steer away from these practices by definition and would see a surge in even the non-Muslim members placing their confidence on financial institutions founded on ethical principles. Conclusion

There is no doubt that the Takaful industry will grow further in the Middle East, especially given that the insurance market is still under-developed in the region. Despite a current lull in economic conditions, the long-term economic outlook for the Middle East insurance industry continues to be positive. In addition to favourable demographics, there has been significant growth in the number of companies that have set up Takaful operations over the last few years. Many of the new market participants are equipped with global best practices and are well capitalised. Thus, the new entrants are expected to spur competition while at the same time increasing Takaful acceptance and awareness. Takaful today is widely regarded as an innovation in the insurance industry. While Takaful lends itself very well to personal lines of business, the corporate risk market is much more complex. We believe that the next round of innovation will come from large-scale risk coverage for large businesses, especially those which are funded by Islamic banks.

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SOLUTION SPOTLIGHT

AGILIS Bancassurance Banks consider technology to be a key business driver. Bancassurance has grown to become one of the largest distribution channels for insurance companies across the globe. Earlier, bancassurance activities were handled manually under one roof by a few players with a limited clientele and geographic coverage. However, with competitive pressure on productivity, efficiency and customer service standards rising, bancassurance providers have increased their adoption of technology, and now consider it a key business driver.

Companies active in strategic Bancassurance partnerships continue to seek technology which can provide the necessary fuel to enhance agility in adopting, integrating and implementing change. Technology that can provide all this without locking-in companies in heavy investments is clearly the way to move forward. AGILIS Bancassurance is a comprehensive solution for banks that sell insurance products, both life and non-life, to their clients. AGILIS Bancassurance manages the bank’s entire insurance broking back-office operations, leaving its staff to focus on procuring more business and spending more time in the front office. The product is capable of handling:

The alignment and integration of various processes have resulted in connecting the banks’ network and have helped them significantly to achieve seamless integration with insurers’ systems and processes. The adoption of integrated technology has led banks to achieve improved efficiency by way of decreased operational costs, decreased turn around time, increased revenue, scalability, integrated and aligned business processes resulting in creation of true value for stakeholders.








Functionally rich, the product integrates with insurance companies’ systems seamlessly and also allows for greater accuracy while providing speedy transactions, leading to improved customer satisfaction. Every bank providing bancassurance looks for a system that:




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Life Motor Health (including medical and travel) Property and Fire Marine, Mortgage and Engineering

caters to all classes of insurance is specifically created for the bancassurance industry enables cross selling and up selling to existing bank

SOLUTION SPOTLIGHT






customers reduces paperwork to a large extent has built-in reports that offer intelligent and meaningful reporting to various hierarchies in the Organisation is flexible and can be customised easily and quickly

Given the fact that financial services operate in a highly competitive and regulated environment, Agile FT brings to the table sound domain expertise and significant scalable processing capabilities in the knowledge services space. In addition, Agile FT helps clients define products, align them to organisational goals, build flexible and scalable systems and processes and deliver service levels at an optimum cost.

each insurance company. It also provides the facility to import policies directly by interfacing with the insurance companies’ database as well as to compare different insurance products from various insurance companies across multiple parameters. Reconciliation The system effectively allows for the reconciliation of proposal data with the issued policy data between the bank and the insurance company. This ensures that there is no gap, and that the insurance company has processed all the proposals that have been generated by the bank. Sales Management

Platform enabled outsourcing is emerging as the definitive model for many banks as they strive to lower operational costs to ensure a high return on investment. This can be defined as the ability of an outsourcing vendor to provide its services around functionality rich application software platforms that are used for fulfilment and dissemination. Platform enabled outsourcing is likely to experience tremendous uptake in the coming months, especially in the wake of the current liquidity crisis. Financial institutions should, therefore, take advantage of the benefits that can be sought from this model in order to stay ahead of the competition and drive innovation. Features

AGILIS Bancassurance allows creation and maintenance of comprehensive profiles of clients as well as Insurance companies/ branches. It is geared to manage a bank’s insurance business ranging from assigning revenue targets to its channels to tracking incentive earned by the sales staff and ultimately total commissions earned by the bank.

This module allows the definition of business sources such as bank employees, brokers, consultants and tele-marketers. It also enables the definition and monitoring of targets and remuneration for each source of business and supports the management on finding out the most productive and profitable source. Commission and Brokerage The system offers a commission and brokerage calculation module that can be parameterised. Sales commission, incentives, brokerage and consulting fees can be calculated either as a percentage or on a fixed fee basis for all sources of business. Processing Renewals This module enables the issue of renewal notices to clients well in time before the renewals are due. It also allows for endorsements with or without change of premium.

The system allows business transactions to be recorded from the bank’s branch offices with built-in secure and controlled access rights.

In addition to the front end staff using it, this functionality is also useful for back office bank employees to calculate commissions and charges with the insurance company.

Client Management

Administering Users

The system allows creation of individual and corporate clients and captures the relevant personal and official details, including a facility to attach corporate clients to a group company. It assists bank staff to capture the essential underwriting details required to generate a proposal. Mass mailing and policy reminder facilities are available to remind customers about upcoming renewals well before the expiry date.

AGILIS Bancassurance allows for robust and multi-layered administration of users through a centralised console. Every member of the bancassurance staff in the bank has a login id to the system and access to the system is defined based on his function, role and status in the organisation.

Insurance Company Management This module enables the bank to create insurance company profiles including the attachment of specific products to

Generating MIS reports AGILIS Bancassurance has the ability to generate a variety of reports that are required by different layers of management from time to time, with granularity of detail possible upto a single transaction level.

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PARTNER SPOTLIGHT

Expansion in Sub-Saharan Africa A profile of RPC Data Ltd, Agile FT’s business partner for Sub-Saharan Africa RPC Data Ltd (www.rpcdata.com) RPC Data Ltd, the largest integrated information technology services company in Botswana, specialises in software development, management consulting and systems integration. The company is the only IT firm listed on the Botswana Stock Exchange since 1999. RPC Data also has operations in Zambia, Uganda, Kenya and an offshore development centre in India. One of the oldest Oracle Partners in Africa, RPC Data has implemented and supported systems at most of the large public and private sector enterprises in Botswana and the SubSaharan region servicing industry verticals such as banking and financial services, manufacturing and defence. The company specialises in its systems integration practice, project managing installations that involve multiple vendors and suppliers of specialist skills not easily available in the region.

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RPC Data has also built and supported a number of bespoke applications that meet unique application requirements in the public sector such as taxation systems, registration systems, management systems; and in the private sector such as telecommunication management systems and financial services industry systems. RPC Data’s management believes that in the medium term the upward trend for local software development will be maintained and that the company is in a strong position to capture significant market share. Mompati Nwako, the Executive Director of RPC Data group notes that, by partnering with Agile FT, RPC will be able to strategically service the Insurance and Financial sector in Africa. This relationship is a demonstration of Agile FT’s intent to create a sustainable and strong support base for its clients in Africa’s BFSI sector. Agile FT was recently chosen by Zimbabwe’s Optimal Insurance Company (Pvt) Ltd, a subsidiary of one of Zimbabwe’s largest and diversified financial services institution - CBZ Holdings Limited - to implement AGILIS Core Insurance Software. The new system, whose implementation is scheduled to complete shortly, will allow Optimal Insurance to not only automate all its existing operations but also enable them to quickly create new insurance products thereby reducing time-to-market. Both RPC and Agile FT hope to replicate the successful implementation in Zimbabwe with similar projects in the BFSI sector in sub-Saharan Africa.

www.agile-ft.com

Agile Financial Technologies Pvt Ltd 701-A, Prism Towers Mindspace, Malad (West) Mumbai 400064 India Tel : +91-22-42501200 Fax: +91-22-42501234

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