Personal: Alternative action
Karamjit Singh takes a look at insurance -- traditionally looked upon as a safety net -- as an investment option

If you have RM50,000 you wish to invest, where would you put your money? Everybody's favourite vehicle -- fixed deposits -- is no longer attractive unless you are a cautious -- make that super-cautious -- investor.
The stock market looks inviting now. Maybe you missed out on the good times of 1993 to 1996 and are determined to make up for lost opportunity today, especially as the market seems to be inching up. Maybe you are telling yourself, "I don't want to miss out on the next wave."
There are plenty of options, too. You can go for it yourself. After all, you have read Warren Buffet's book on his strategies and a plethora of other books by investment "gurus". Or you can let professional investment managers grow your money. There are choices of a few asset managers. Alternatively, you can go for unit trusts, many of which are backed by banks.
Alternatively, if these financial investment tools are not your cup of tea, there is always the reliable property market which is currently a buyers' market. And haven't we all heard of great buys a friend or a friend's friend got?
In all likelihood, these are the investment choices most people would mull over. However, the insurance industry would like you to think of insurance as a vehicle for growing your money. But this will be a difficult wall to scale. Malaysians as a whole do not yet see insurance as a vehicle to grow their money. They see insurance, in its various forms, as a safety net and savings vehicle.
MBA Life Assurance Bhd chief executive officer Vincent Kwo says the majority of Malaysians still see insurance as a vehicle to protect their families, to ensure the children's education, and to protect their existing assets.
Typically, consumers begin to see insurance as an investment option when a country reaches a certain level of economic prosperity. In this aspect, Malaysia still has a long way to go, says a senior executive in the industry.
Gina Low, a marketing manager with a property developer, gave a typical reaction when asked if she would consider insurance as a vehicle to grow her money. "I am already well-insured," she says, although her insurance agent tries to convince her otherwise. A great believer in unit trusts, she sets aside a few hundred ringgit a month to invest in them.
To her, insurance should stick with what it does best and leave the riskier but better returns investment vehicles to investment experts. In fact, any insurance agent will be able to tell you that this is a common reaction. An insurance manager whose team sold more than RM2 million in policies estimates that less than 5.0 per cent was for investment-linked vehicles, "of which there are only three anyway" (see box on page i). Besides, the few choices available are a real tough sell to the customer, he says.
This could indicate that agents need to be better prepared. L Meyyappan, CEO of MCIS Insurance, points out that to sell more sophisticated investment-linked products to consumers requires a higher degree of understanding and depth among agents. Using annuities as an example, he explains, "Annuity products are tailored to suit individual needs and this requires more than just selling ability."
Before a person purchases an annuity product, he should consider factors such as his lifestyle -- whether he wants to maintain his present lifestyle upon retirement or whether he is willing to accept a reduction in his lifestyle.
Such questions usually warrant a complete assessment of the client's well-being. "Unless the client has faith and confidence in his agent's ability to advise him, such information is not easily available."
A number of insurance companies have already taken steps to train their agents to become financial advisers to their customers and move beyond the traditional role of insurance agents. This is in preparation for when the industry will be able to offer more aggressive investment-linked products. At the moment, the regulatory constraints are holding the industry back, says the chief executive of an insurance company.
But the industry has to start somewhere if it is to educate Malaysians to the non-traditional investment choices they have with their friendly insurance company.
The first company to come up with an investment-linked product was Prudential Assurance Malaysia. It marked a small step forward for the insurance industry. There was a small snag, though.
"We could not have picked a worse time," concedes its chief executive officer Ng Keng Hooi. Called Pru-Link, the product was launched in July 1997. Through Pru-Link, investors allows the insurance company to invest their money for them in the stock market.
Other companies have since followed with similar versions. But this is not nearly enough. What is needed for these products to really take off, CEOs of insurance companies contend, is more government support and tax incentives.
"For annuities to work, they must come with tax breaks," says Ng. "In the US, the market for annuity took off when the government introduced a deferred annuity tax."
Meyyappan would like to see the government offer incentives to encourage people to allocate a certain percentage of their Employees Provident Fund contributions to purchase annuities. This approach works in Singapore, where at least 30 per cent of an individual's provident fund has to be invested in annuities.
If there are any bright spots for the insurance industry to get investment-linked products popular, it is the relative youth of the local market. Ng estimates that the number of policies versus the population stands at 25 per cent, but due to multiple policies the number of Malaysians insured is less than that. Compare this with Singapore where over 90 per cent of the population is insured.
Also, in any mature insurance market, the investment-linked segment grows when people begin to take charge of their lives because of the opening of the once-regulated pension market. "As more people start to take care of their own retirement planning and to protect their assets against inflation, annuities and other investment-linked products could be one of the main alternatives," says Meyyappan.
This will eventually mean consumers such as Gina Low will no longer scoff at parking their hard-earned money in insurance products to earn strong returns in the short to medium term.

Fund's investment objectives
Each fund pursues an investment objective, which is normally stated in the sales literature. If the fund has a track record, check its annual or interim reports to see whether it has been conforming to its intended objectives.

Company and fund manager background
Reputable insurance companies are usually backed by funds and resources which have consistent, good track records. Also select experienced fund managers with consistent good past performances. Consistency is the hallmark of a good fund manager as it proves that even in a down market, the fund manager is able to provide returns. These past performances can be obtained from annual/interim reports of the funds.

Product choice
Under an investment-linked product, the investor should be given the option of deciding the proportion of the premium he wants to invest in the available funds, be it an equity fund or a fixed income fund.

Benefits
Investors should check the benefits provided with the investment-linked product. Find out the percentage of insurance coverage for death and total disability. Enquire about the minimum amount that can be withdrawn and also the amount that needs to remain in the account. Find out whether top-ups are allowed, whether or not there is a switching facility and if that comes with a cost.

Fees and charges
Investors need to know and compare the overall fee structures -- bid-offer spread, initial charge, fund management fee, policy fee, and insurance charge.

Berjaya Prudential's PruLink Investor Account
What is it: A single premium investment linked life insurance policy specially designed for lump-sum investors and regular savers. The objective of the PruLink fund is to maximise returns over the medium to long term.
Insurance coverage: A guaranteed payment of at least 125 per cent of your initial investment on death or total disability, regardless of investment performance.
Benefits: Quick and easy withdrawals; the flexibility to close your account at any time; the option to add lump sum investments whenever you want; the choice to switch between funds at any time to suit your investment needs; tax-free proceeds under current practice; and the convenience of keeping track of your investment.

Maybank's FD Premier
What is it: The first of its kind in Malaysia it is a special Maybank fixed deposit linked to a Unitised Investment Plan (UIP) The tenure is from 5 to 20 years. It does not wait until your fixed investment deposit matures. From day one, FD Premier invests your annual interest by buying you units in the UIP.
Insurance coverage: Life insurance cover that increases every year.
Benefits: Annual upfront interest credited to your UIP from Day 1; potential investment growth; complete security for your capital investment; hassle-free investment managed by professional fund managers; flexibility in choosing how your money is invested; clear, transparent and timely performance reports; insurance benefits are tax-free; tax relief on paid premiums; 24-hour Worldwide Emergency Rescue Service; and cash rewards for excellence in public exams for your children.

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