Liberalization of Commission Structure: How Minimum Allocation Rate (MAR) Affecting Takaful Operator’s Model

Effective 1 October 2020, Bank Negara Malaysia (BNM) Life Framework required all Takaful Operator to comply with the new Minimum Allocation Rate (MAR) requirement together with the liberalization of commission structure. Due to the implementation of MAR, few Takaful Operators decided to withdraw their Investment Link plans from the shelves and launches more Family Takaful savings plans. The implementation of the new MAR primarily to establish a sustainable fund for the participant, but the operators look at it as a tight policy that could affect mostly on commission structure for agents. From the distribution side, reducing the commission structure could lead to the withdrawal and reduction of agents. For big players, they can still offer this product by reducing profit margins and an increase in the volume of sales. For small and mid-players, the innovation in Takaful Model is crucial to ensure they can offer a similar product without contradicting the new MAR. This paper will propose an innovation for Takaful Models that could help the Takaful industry remain relevant in the market.