CUESTIONARIO PARA MEDIR LAS NECESIDADES AL

The respondents agreed overall on the low microtakaful uptake issues. Concerns were expressed about the low penetration rate in Malaysia, even in the takaful market. These views surfaced mainly in relation to low demand and the issues behind this situation. A number of issues were identified, including affordability, awareness and perception, as well as past shock experience.

3.4.1.1Affordability

The affordability issue among public and microtakaful clients also contributes to the reasons why there is low demand for microtakaful schemes in Malaysia. This is because there are no specialised products offered to the low-income population, which is all that

microtakaful schemes in Malaysia were meant to offer to Malaysian citizens, regardless of their level of income. In contrast, there are free microtakaful schemes that are subsidised only for selected low-income populations. There is many subsidised microtakaful schemes; this is because of the free subscription and the fact that participants are protected without paying anything.

Microtakaful should be affordable by clients and the public; otherwise they are unwilling to participate in these products and services. Affordability issues remain complicated to resolve if microtakaful providers ds not implement various strategies, e.g. having a small package of microtakaful protection, spreading premium payments, obtaining support from the government. As respondent 3 said:

“Many people said that they don’t want to participate in microtakaful protection because they can’t afford the monthly contributions, they do not have enough salary because the salary is too small, etc. … We try to educate the consumer on the importance of having protection, even basic protection, to prevent any future losses.”

In light of the above, it is evident that the public are unwilling to participate in microtakaful protection due to affordability issues. They are reluctant to pay in advance because the premiums do not meet with their preference. Current and dominant takaful or microtakaful products are often costly and complex, especially with saving and investment policies. The innovations of takaful or microtakaful products have been increased by including a saving and investment element to attract consumers but neglect the low-income population as the price may be unaffordable.

From another perspective, affordability is related to financial literacy; what individuals think about the affordability of certain products and services is strongly influenced by their literacy. In contrast, understanding certain products influences what people think they get from the premiums paid. Therefore, the meaning of affordability should be explained in detail and the consumer informed about the real differences between takaful and microtakaful. This is because consumers always see microtakaful as being expensive as takaful, and they might think they cannot afford the monthly contributions. This difference is not well understood, especially among the low-income group. Furthermore, the complexity of policies could be reduced to minimize prices and enable households to be insured.

The affordability of premium contribution is important as this minimizes the cost of administration and distribution without sacrificing the length of any claims settlement process. The costs incurred have to be kept to a minimum to ensure that microtakaful schemes are affordable and yet easily accessible in order to suit the needs of the low- income population. There is a need to restructure monthly payments in a way that makes sense to future policyholders. In addition, policy education is also needed to enhance financial literacy, as well as takaful literacy among consumers. It is important to ensure that individuals make better decisions regarding whether or not to participate based on previous theories. From the above results, this study suggests the following statements: Statement 1.1: An individual’s affordability positively influences the low uptake of microtakaful schemes.

Statement 1.2. The degree of financial literacy education is related to microtakaful penetration among individuals in Malaysia.

3.4.1.2Awareness and perception

Unfortunately, there are certain individuals who do not have any kind of social and financial protection as a safety net in difficult situations. They tend towards ex post action rather than participating in ex ante protection. Awareness among this population gives a critical understanding of the penetration rate of microtakaful. When they are approached by microtakaful providers to participate in any microtakaful scheme, they give their own reasons and opinions for refusing that particular scheme.

Due to a lack of understanding and awareness regarding microtakaful protection, microtakaful providers face difficulties in explaining to participants and the public about their schemes. In addition:

“We try to educate the consumer on the importance of having protection, even basic protection, to prevent any future losses.”

At the same time, Respondent 3 shared his views on the matter of customer awareness of microtakaful, particularly the importance of having appropriate social and financial protection if any unexpected event occurs. This issue raised the need to increase the level

of awareness of risk mitigation. It would be worse for them if they do not have any temporary or partial relief for financial difficulties arising from unforeseen situations. This shows that they do not care if they are protected or not. To create awareness takes time and effort. Sometimes, they have their own risk-coping mechanisms that leads to the low uptake of microtakaful schemes. They were aware of how important microtakaful schemes are, but they believe they can manage their own risk by themselves. They may have their own savings, investments in unit trusts, assets, a permanent job or other risk- coping mechanisms.

The interview sessions also explored the respondents’ views on issues regarding public perception towards microtakaful schemes in Malaysia. All of the respondents expressed their own opinions and emphasised the challenge in offering microtakaful schemes to the low-income population. Respondent 3 explained that:

“…when we mention insurance or takaful, many people will have a negative perception and try to avoid participating in this product. It is because they say that insurance or takaful is misleading… .”

Negative public perceptions might start from several factors, including lack of customer awareness, education, takaful literacy and financial knowledge about microtakaful protection among participants and potential customers; this leads to misconceptions in the microtakaful market. It is important to educate microtakaful participants and the public about paying monthly premiums for intangible benefits that they have never claimed or experienced. Creating awareness and informing the public about the importance of extending social protection is time-consuming and costly, which requires endeavours from both directions in microtakaful markets.

Lack of information also results in misunderstanding and misapprehension towards microtakaful schemes among the general public. Therefore, it becomes a problem to microtakaful providers since these misconceptions create negative public perceptions about their products; this then leads to low demand for microtakaful protection in Malaysia.

The dimension involves perception and awareness in response to microtakaful demand and supply. Overall, these results indicate that customer awareness and perception are

among the important issues to be addressed and solved in order to increase the rate of microtakaful uptake. If clients are well served and identified, and ongoing communication with the customer is maintained as well as with potential customers, it will prevent any demand problems for microtakaful providers. Additionally, in takaful institutions, these issues are still debated among takaful providers. Among the target group, it is important to overcome these problems by improving the quality and efficiency of relayed information and the communication used. This finding is also in line with previous theory, which explains that individuals will makes decision based on their condition at the reference point. The level or awareness at the reference point will influence their willingness to join a microtakaful plan. This leads to the following statements:

Statement 2.1. Low demand for microtakaful schemes is influenced by the level of awareness among individual and potential microtakaful participants.

Statement 2.2 The better the perception among individuals towards microtakaful, the more likely it is for the uptake of microtakaful schemes to increase.

3.4.1.3Past shock experience

In some circumstances, public perception differs in different areas. Surprisingly, the demand for microtakaful protection is slightly higher in rural areas based on their past shock experience of having difficulties in handling risk exposure. According to Respondent 2:

“…no difference at all, but in certain cases people in rural areas are more willing to contribute, willing to participate, rather than people in urban areas. Maybe the villagers or people who live in rural areas have experience pain when they want to arrange a funeral and face financial constraints at the same time… .”

Experience of any circumstances or hazards in the past, in particular a death or accident to a community or household member, influences them to participate in microtakaful protection. Additionally, risk exposure will affect whether people participate in microtakaful protection or not. Any past shock experience influences the behaviour of the individual against risk.

From the above evidence, groups not having had any previous difficult situations are slightly reluctant to get any microtakaful protection. Furthermore, people in rural areas who are exposed to vulnerability, and who have experienced previous difficult situations in funeral management around their community, may be motivated to adopt takaful protection. As per the theory discussed in the previous section, risk preferences will influence individuals to make decisions under uncertainty risk regarding choosing whether or not to join a microtakaful plan. This finding leads to the following statement:

Statement 3.1: Individuals without any experience of previous difficult shocks will not be interested in having microtakaful protection.