Syariah Division

Business Plan

MBA University Of Liverpool

Module; Entrepreneurship
Date; March-April 2009
Student; Hans de Waal
Student number; 15252539
Facilitator; Michael Grandon

1. Table of Contents
1. Table of Contents...................................................................................................1

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2. Introduction............................................................................................................4

3. Executive Summary..............................................................................................5

4. General Business Overview................................................................................6

5. Marketing Plan....................................................................................................10

5.1 Economics.........................................................................................................................10

5.2 Manulife’s Opportunity...................................................................................................12

5.3 Products.............................................................................................................................13

5.4 Customers.........................................................................................................................14

5.5 Competition.......................................................................................................................17

5.6 Marketing Strategy...........................................................................................................19

5.6.1 Promotion...........................................................................................................20

5.6.2 Pricing.................................................................................................................21

5.6.3 Proposed Location............................................................................................21

5.6.4 Distribution Channels......................................................................................22

5.6.5 Sales Forecast

........................................................................................................................................22

6. Operational Plan.................................................................................................24

6.1 Legal Environment...............................................................................................24

6.2 Personnel...............................................................................................................24

6.3 Inventory................................................................................................................25

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6.4 Credit Policies........................................................................................................25

7. Management and Organization.......................................................................25

8. Startup Expenses and Capitalization...............................................................29

8.1 IT Admin system Customization..................................................................................29

8.2 Consultant Fees................................................................................................................29

8.3 Rent and Office admin expenses...................................................................................30

8.4 Training..............................................................................................................................30

8.5 Marketing..........................................................................................................................30

8.6 Financial Plan...................................................................................................................31

8.7 Key Assumptions related to Sales.................................................................................31

8.8 Rent and Office admin expenses....................................................................................32

8.9 Commission and Sales Bonuses......................................................................................32

8.10 Acquisition and processing expenses.........................................................................32

8.11 Change in Policy holder Liabilities...............................................................................33

8.12 Training.............................................................................................................................33

8.13 Marketing.........................................................................................................................33

8.14 Opening Day Balance Sheet..........................................................................................34

8.15 Break-Even Analysis.......................................................................................................35

References................................................................................................................................38

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2. Introduction
As part of the module entrepreneurship, part of the MBA course at the University of

Liverpool this paper is a business plan for launch of the Syariah Division within

Manulife Indonesia, prepared by Hans de Waal, who works for Manulife as a Senior

Vice president, Chief Actuary and Deputy CFO, during the period an in line with the

requirements of the course. The launch of the Syariah division is considered a good

example of the role of "intrapreneurship" in an on-going business enterprise.

The paper was specifically produced for the purpose of the course it is based on

information produced and published by the industry association and other publically

available data.

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3. Executive Summary
Manulife Indonesia is currently a well established player in the life insurance market

in Indonesia. It has divisions focusing on respectively personal lines insurance, group

insurance, mutual fund business, and distributes through a tied agency force and third

party relationships like banks.

Indonesia is home to the most populous Muslim community in the world, as over 200

million Muslims can be found in Indonesia.

The business idea is to bring the experience of Manulife in Indonesia together with the

opportunity the market offers through offering Syariah compliant insurance products in

the Indonesian market. This would allow Manulife to capture a bigger proportion of the

market than is currently has, the Syariah segment of the market is growing as more and

more Syariah compliant financial institution have started to develop in recent years;

initially this was banks but more recently insurance companies have followed suite.

Customers will mainly be found in the major Indonesian cities. In each of these

Manulife currently has an established sales presence. Indonesia has a developing

middle class, which will be predominantly the target market of the Manulife Syariah

division. This market is continuously growing. There is strong pull from the cities to

people in the rural area’s and Indonesia has seen continued urbanization, therefore the

most lucrative markets appear to be in the major cities.

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In terms of pricing the strategy will be to price the products in line with Manulife’s

pricing strategy for the conventional business; meaning a positioning in the cheaper

quartile of the joint venture market.

The main sales resource for the division will be the existing agency force of Manulife,

which has a well established presence in the major cities in Indonesia. Under Syariah

regulation Manulife will be allowed to use the same agents for distribution of both the

conventional and Syariah products.

Advertising is considered an expensive strategy and not very effective, exposure an

publicity is more effectively achieved through press conferences related to product

launches and sales progress, the marketing plan will therefore focus on these initiatives.

The financial side of the plan looks well; as the division will be able to lean much on

the existing Manulife operation, it has relatively low fixed expenses attached to the

project and therefore the break even point would be reached if Manulife would manage

to sell 481 policies in the first 6 months, that would mean only a pick up of 2% of the

current sales volumes; therefore it is expected that the division will easily reach break

even soon after its launch.

4. General Business Overview

The Manulife Syariah Division will specialize in manufacturing, marketing and

administering Syariah compliant life-, and health insurance products, for the benefit of

the Indonesian Muslim population. It will bring together the existing insurance

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expertise and financial strength of Manulife Indonesia, with innovative insurance

concepts that are developed in accordance with Syariah rules and regulations. The

growing awareness of Syariah compliant finance in recent years in Indonesia, combined

with continued steep growth in Indonesia’s life insurance market, the fact that close to

90% of Indonesia’s 220 million inhabitants is Muslim, and Manulife’s established

reputation and brand recognition in the Indonesian market make this a unique

opportunity.

The Division’s mission will be to provide financial security to the Indonesian Muslim

population and through innovative insurance solutions give its target market access to

Manulife’s unrivaled financial strength and customer service quality.

The goal of the division is to immediately become a market leader in terms of product

innovation, to become a top 3 player in the Syariah insurance business within 2 years

after its launching date and in terms of business volumes target the number 1 one

position in the Indonesian Syariah Life Insurance market within 5 years of its launch. It

will do this without making concessions to Manulife’s internal financial objectives. The

Syariah business is targeted to accelerate Manulife Indonesia’s growth an additional

20% on top of its already aggressive development targets.

The core business principles of the Division will be;

- To provide Real Value to its customers, through its products and services

- To provide unrivaled Financial Strength

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- To show the highest levels of Integrity

- To be the Employer of choice in the (Syariah) Life Insurance industry in

Indonesia

The Target market of the division will be the upper and emerging middle class

segments of the Indonesian Muslim population. The division will make use of

Manulife’s existing distribution capability, which spans sales office in 23 cities across the

archipelago.

The Life and health insurance market in Indonesia have show steep growth in recent

years, expanding at 20-30% each year. The Syariah section of the Industry has only

started to develop in recent years, and currently makes up less then 2% of the total

industry. On the back of growing awareness of Syariah compliant financial products

and services however, the Syariah sector growth in coming years is expected to out pace

the industry’s growth. Manulife will be excellently positioned to take advantage of this

growth opportunity, as it has a well established brand-name and distribution as well as

servicing capabilities. Manulife has in recent years already developed a reputation for

product development and innovation, and will be able to field its existing creative and

technical teams to bring itself to the forefront of the market quickly.

The Division will legally reside within the current life insurance company, although it

will require to be separately financed and separately accounted and reported for.

Parallel to the current overview structures the division will be subjected to the

supervision of a Manulife Syariah Council, that needs to be appointed by the National

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Syariah Board (NSB), and which will be focused on monitoring the Division’s

compliance to Syariah laws (Fatwa’s) issued by the NSB.

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5. Marketing Plan

5.1 Economics
The life insurance industry in Indonesia is a relatively young industry. The market

opened up for foreign entries in the 1980s and most foreign companies that are

currently present in the market actually entered the market in the 1990s. There is total of

50 life licenses issued to market players, but many of these are rather inactive

companies. The key 20 players have a accumulated market share of over 95%.

The Syariah Insurance market has shown good growth pattern in recent years with

annual growth of between 23% and 60% each year. As compared to the total market, the

growth of the Syariah market has outperformed the market growth, although it is

coming from small basis. Growth in premium income for the Syariah Life Insurance

market can be seen in the graph below;

Graph 5.1, Syariah; historical premium income, and Market Share

700 3.00%

600 2.50%
IDR billion

500
2.00% Syariah Premium
400 Income
1.50%
300 Percentage of total
1.00% industry
200

100 0.50%

0 0.00%
2002200320042005200620072008

Source; AAJ I (Indonesian Life Insurance Association) annual reports

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The Syariah compliant financial retail industry is even younger; in 2000 only 3

Syariah compliant companies were active in the market, but in recent years the number

has grown significantly. Currently the companies that have a Syariah presence are as

follows;

Table 5.1; Syariah compliant life and Reinsurance companies in Indonesia

Full Syariah Co mpliant Insurance companies with

comp anies a Syariah Division
1. Takaful Keluarga 1. MAA
2. Asuransi Mubarakah 2. Great Eastern
3. Bringing Life
4. Bumiputra 1912
5. BNI life
Reinsurance companies with 6. Sinar Mas
Syariah compliant divisions 7. AIA
1. PT ReIndo 8. Panin Life
2. PT Reasuransi Nasional Indonesia 9. Allianz Life
3. PT Marein 10. Equity Life
11. Mega Life
12. Central Asia Raya
13. Prudential

Source; AAJ I (Indonesian Life Insurance Association) annual reports

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5.2 Manulife’s Opportunity
Although the growth in premium, seems impressive, the component of the Syariah

compliant market as part of the whole life insurance market is still small (just over 2%).

Most companies that have entered the market have done so hoping to be able build on

the product differentiation alone; these companies have little intrinsic distribution

capability and therefore have not really been able to capitalize on an early mover

advantage.

Manulife’s has a well established distribution capability as it currently has 4,500

contracted agents, that can immediately be trained and activated to sell the Syariah

product line. Manulife’s agency force is spread out in 32 cities throughout Indonesia.

Besides its captive agency force Manulife has established distribution relationships will

16 banks.

Besides its distribution capability Manulife has a well established brand name, which

will work to its advantage. Current Manulife insures over a million people in Indonesia.

Manulife won the life insurance company of the year award in Asia in 2007 and was

ranked a either the number one or the number two position in several local industry

recognitions like the Info Bank magazine and the Life Insurance Industries association

own internal rating.

Thirdly Manulife has a well established customer service capability on which it will

be able to build. In recognition of this it won the call center award for life insurance

companies for the last 4 years running.

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5.3 Products
The initial product that Manulife will launch will be a personal insurance product

following a unit linked format. The unit linked products have in recent years gained

much popularity in Indonesia, and Manulife has seen increasing popularity of these

products within its own product portfolio. Manulife will initially offer one base plan

and 3 rider products. Within the first year after the launch of the division the number of

riders will be brought up to 5 and a second base plan will be launched.

The product line will be established on the series using the name Berkah which means

gift in the Arabic language.

Berkah SaveLink; This basic product will be offered against regular premium payment.

It will offer the policyholder the possibility to choose his sum insured independently of

the annual premium, and will give the policyholder freedom to adjust the sum insured

if and when so required in the future. The client will have the choice of three distinct

investment option on the plan; Syariah equity Fund, Syariah Balanced fund and a

Syariah money market fund. The product will have a competitive pricing structure (see

details in section. The product will give opportunities to flexibly top-up and withdraw

funds and switch between the different investments options at no cost.

The funds will be managed by Manulife life insurance’ sister company; Manulife assets

management Indonesia (MAMI); this is a unique selling position as Manulife is the only

company that is both significant player in the life insurance as well as the fund

management industry.

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Berkah Waiver of contribution; under this rider coverage Manulife will take of the

payments of annual contribution to the policy in case the policy holder become totally

and permanently disabled; this enables the inured to continue to enjoy his coverage

even if at some stage in the future he will not be able to work any more.

Berkah HealthSafe; under the cover of this rider the policyholder will be able to cover

himself against the cost associated wit being hospitalized. The product will be offered in

in option of several different levels of room and board benefit. So the policy hold can

flexibly decide how much cover he wants; the plan will make available several benefits

that are standard in the market such as ICU, doctor and specialist expenses, but will

have a number of unique selling points such as cover of home nursing care after release

from the hospital and cover for kidney dialysis. The cover will have maximum of 120

days hospitalization within each year, which is also competitive in the market place.

Berkah Accidental Death; this rider enable the insured to increase his insurance cover

in case he dies of would be disabled as the result of an accident.

5.4 Customers
The target market of this product is the high-, and the emerging middle market

segment of the Indonesian Muslim population. These groups are primarily found in the

major urban centers in Indonesia; in all these Manulife has a sales presence. Indonesia

has a total population of 220 million; over 905 of this population is Muslim, putting the

total number of Muslims at around 200 million.

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Income level of the target customer is IDR 5,000,000 (US$ 500) and above, people with

secondary education level, who are either employed or self employed.

The age distribution amongst targeted customers is in line with the experience on the

current Manulife conventional business. The fast majority consists of customers in the

age group between 30-50 years; these people will have steady income and have

relatively young families to whose benefit they will be taking out the insurance cover.

There will be some outflow on both older and younger customers;

Table 5.2 Age distribution of targeted customers

Age group %-age

20-30 10%
30-40 40%
40-50 35%
50-60 10%
60-65 5%

In terms of location all distribution centers are expected to contribute. The

religious distribution in Indonesia differs by location. For example the island

of Bali is primarily Hindu and areas like Papua, and eastern parts of

Indonesia as well as in central Sulawesi, and north Sumatra there are some

area’s that are primarily Christian. Primarily Muslim religion is dominates the

country as can be seen from the map below. The distribution of business is

expected to reflect this somewhat.

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Graph 5.2 Indonesia Religions Map

Source; Indonesian Embassy In Prague

By main geographical areas the distribution is expected to look as follows;

Table 5.3 Age distribution of targeted customers

Region %-age
Greater Jakarta 50%
Central Java 15%
East Java 20%
Sumatra 9%

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Sulawesi 4%
Others 2%
Source; author

5.5 Competition
The main competitors for Manulife in the Syariah life insurance segment are

Prudential Life and Allianz Life. Both companies have entered the Syariah market only

recently and have made excellent use of their existing distribution capabilities to

quickly become market leaders in the section of the market.

Factor Manulife Strength Weakness Prudential Allianz Importance to

Customer

Initially one base x 2 base plans + 7 riders 1 base plan + 4 riders 5

Products plan + 3 riders

Plays consistently in x Is rather highly priced, Middle of the road 5

Price the bottom quartile, seems to be focused on strategy
so can be considered maximizing its own
cheap profit at any expense

Triple A rating x Single A rating Single A rating 4

Quality
Has won several x Consistently scores high Has no distinguished 4
Service service quality in service quality positive (nor negative)
awards for the recognition survey. reputation on service
industry quality

High x High Medium 3

Reliability
Excellent quality of x Agents are well trained Aggressive. Ahs been 3
Expertise agents, well trained in selling, but no focus poaching many agents
experienced. on needs of customers. from other companies,
Understand the Limited product offering leading to a mixed
need of the (besides the Syariah quality level within its
customer offering) distribution force

Company has an x Fast moving, modern Has had to spend a lot 4

Company excellent reputation and dynamic. Touching of money and reported
Reputation in Indonesia; losses for many years

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Factor Manulife Strength Weakness Prudential Allianz Importance to
Customer
reliable solid, on the overconfident. in building up its
comprehensive capacities. This has
profitable. Maybe given it a dented
somewhat arrogant. reputation

32 branch offices, 16 x 45 branch offices, 2 bank 34 branch offices, 8 4

Location bank relationships relationships bank relationships

Mediocre company x Highly stylized company Reasonable well 3

Appearance profile, does not feel appearance, consistent in designed company
very modern, sales material, house style. But not as
specifically in use of illustration software and good as PRU in terms
illustrations to brochures of illustration lay-out
client.

Has well developed x Has well established Has standard training 4

Sales Method sales method, with training method, and sales delivery
focus on identifying although the delivery is methods
the needs of the not very customer
customer focused

Spend limitedly on x Advertise primarily Advertise primarily 2

Advertising advertising through billboards in through billboard in
main cities main cities

The number in the final column estimates the importance of each competitive factor to

the customer. 1 = critical; 5 = not very important.

Manulife’s main weakness is that it is late to enter the market as compared to its two

main competitors. There fore is will have the play catch up in term of product

development. The advantage of this will be that it know the products of its competitors

and will therefore be able to position itself favorably in terms of pricing. On the

conventional side Manulife has build a reputation for having competitively priced

product offerings.

A well established strength of Manulife lies in the quality of its agency force. The

Manulife agents use tools to identify customers financial needs, which is something that

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little of its competitors do as well. Where Manulife falls short though is more on style;

the company’s house style an logo have a old feel tow it, certainly in comparison with

its main competitors.

Manulife’s focus in developing its agency force ahs been different that that of its

competitors; both prudential and Allianz have a focus on developing quantity of agents,

where Manulife primary focus is on developing quality, and productivity. This means

that Manulife agency force is smaller in numbers, but can rival with both companies in

terms of production levels.

Manulife has a network of 16 banks that distribute its products, in this respect it is

unrivaled by its two competitors.

5.6 Marketing Strategy

The strategy will be to use Manulife’s existing needs based selling techniques to

market this product to potential customers. It’s competitive pricing and the flexibility of

the products will allow agents to design solution that fit customer needs appropriately.

All Manulife’s agents will be trained on the features and benefits provided by the

products and how they might fill a specific need because of their Syariah compliant

nature.

Specific regional Syariah product specialists will be supporting agents in different

regents through sales ideas, and more general coaching and monitoring of activities.

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5.6.1 Promotion
Promotions will be mainly be done through creating exposure in the press, but not

through advertising which is considered non efficient in Indonesia; this is mainly

because insurance is a products that needs to be sold though and advisory trajectory,

and is normally not bought on the bases of advertising that should trigger action from

prospective customers.

The media exposure will initially be triggered around product launches. These

product launch events will be held in the main cities Manulife is operational in. the

launch ahs the goal to announce the new products to existing customer and agents, and

combined there wit it we would organize press conferences. In these press conferences

we would get word out, which has proven to be a method that works well in order to

get exposure in selected newspapers and magazines.

On a regular basis these will be followed through with press releases on progress of

sales, to which the financial press is Indonesia is normally very receptive. This approach

is much more efficient way to spend money to get exposure than advertising would be.

Besides this Manulife has a number of infomercial activities, which can be used to

promote the launch of its Syariah product line as well. These are infomercial in Tempo

magazine, which a published weekly and Q-Tv, on which Manulife hosts a series of talk

shows on financial planning and insurance.

Customer gatherings will be organized on on-going bases after the launch to get word

out to existing customers with regards to the Syariah division launch. Manulife

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currently insures more then 1 million people in Indonesia, of which more then 400,000

are individual policy holder. This gives a substantial base to start work of mouth

campaigns. Emails campaigns, add-in flyers in existing customer mailings and SMS

communication are other methods that will be used to get the word out to existing

Manulife policy holders.

Finally the launch of the product will be supported by a sales campaign under the

agency to increase its focus on selling the new product. The sales campaign will provide

the agents access to additional financial rewards, or rewards in the form of tangible

items, like electronics, if they achieve certain sales targets. A customer focused

campaign will be run in parallel providing an interesting benefit to the first 500

customers.

5.6.2 Pricing
In terms of pricing the Syariah product will be target to generate similar profit margin

as the current conventional products if Manulife, so that additional production will lead

to additional earnings. Manulife tries to keep profit margins between different product

reasonable aligned, as long as there I no pressure from the market in any products

segment that would disallow it to do so.

5.6.3 Proposed Location

The Syariah division will be headquartered within the current Manulife head office,

be it in a separate area. There is some restriction around the requirement of the office of

a Syariah division. Although not a strict as in some other countries where things need to

be 100% segregated, it is still required to base the division in separated part of the office.

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This part of the office will initially house the Syariah team as well as member of the

Syariah supervisory board.

5.6.4 Distribution Channels

Initially the division will make use of Manulife’s existing distribution capability,

specifically its tight agency force. The current force of this agency stands at about 4,500

people. There is no requirement under Syariah regulation that the salesperson of a

Syariah product need to be a Muslim. (The Syariah terminology only refers to the

product) and therefore Manulife will be able to be train all its existing agents to sell the

product.

Besides the initial distribution through the agency force the product will be targeted

for sales through existing and new bank distribution relationships.

5.6.5 Sales Forecast

- 400 policies sold in the first month after the launch (8% of total Manulife Sales)

- Growing to by 100 policies each month until it reaches 1,000 policies after 6

months (20% of total Manulife Sales)

- After that the growth is projected at 25% per annum in line with Manulife

existing growth expectation

- Annual Premium per policy IDR 7,500,000; this is based on the current

experience Manulife has on its investment linked products.

- First year persistency; 90% (this reflects the number of policyholders continuing

into a second policy year

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rd
- Second and 3 year persistency ; 93% and 95% respectively; all persistency

assumptions are based on Manulife’s current experience

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6. Operational Plan
6.1 Legal Environment
There is no requirement for Manulife to establish a new legal entity to process its

Syariah compliant business. There is however the requirement to get license for

operating Syariah business by both the National Syariah Counsel as well as the ministry

of Finance, and the insurance regulator. The National Syariah Counsel will asses the

business plan and product and assesses their compliance with the Fatwa’s it has issued.

In order to receive a written approval to start the business Manulife will have to submit

the required paper work and details to this organization.

Once this approval is received Manulife will be able to, in a next step, seek approval

from the insurance regulator within the ministry of finance. This body will be more

focused don accounting standards, product compliance with general and Syariah

compliant regulations.

Both bodies need to issue their approval before Manulife could start its new Syariah

division.

6.2 Personnel
Initially Manulife will have a small team that is specifically focused on the running of

the Syariah division. In many of its daily tasks the Syariah division will have service

contracts on place and through these will rely on established Manulife capabilities.

There will be a team of people that are full time focused on the Syariah division though;

see for more details in section VI.

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Besides the Manulife staff there is requirement for Manulife to have a Syariah board.

The Manulife Syariah board is appointed in its role by the national Syariah counsel, and

will have the specific task to monitor the activities of the Syariah Division and its

Syariah compliance on an ongoing basis. The Manulife Syariah board will consist of 3

people.

6.3 Inventory
There is not much inventory that will need to be held; most of the inventory consists

just of policy paper and other communication tools to client, like brochures and

illustration materials. Inventory is small in terms of value and straight forward to

manage.

6.4 Credit Policies

The credit provided to policy holders will be limited to 45 days. If a policy holder does

not pay his premium due within this period, the policy will go into lapse mode or will

borrow the premium due against its own value, if and as long there is enough value in

the policy.

Credit policies are pretty standard in the industry and there is no need for Manulife

to provide any longer period than this.

7. Management and Organization

The Syariah division of Manulife will partially lean on the established capabilities of

Manulife’s operation in Indonesia, but it will be independently financed and it will be a

segregated in terms of product administration, financial management and regulatory

reporting. Therefore some of the management function will be part time additions to

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existing roles and some people in the Syariah division will have dual reporting lines.

There will be core management team though that will have a full time responsibility for

the running of the division.

The project setting up the division will need to be coordinated by senior people in the

organization. Hans de Waal, who is currently in the role of Chief actuary and deputy

CFO will oversee the process; Hans brings a broad financial and life insurance

management experience to the project, and has specifically strong experience in

products positioning an development, as he worked as head of product development

for Manulife in a previous role. This will be a primary focus of the project.

The on-going division will be managed by a core team existing of the following persons

and functions;

- Yetty Roheati, Head of Syariah Division; Yetty will be the main responsible

person for the Syariah division’s performance; she will oversee the whole

operation of the Syariah division and carry responsibility for the financial

performance of the division, but most importantly she will need to be the driving

force behind popularizing the Syariah concept inside Manulife as well as to

Manulife customers. Yetty has many years of experience in the life insurance

industry, with a specific focus on marketing. Yetty comes from within Manulife,

where in her last role she held a senior position in Agency training. Yetty was

chosen for the role at is assessed that the most critical issue for the success of the

division is process of getting this alternative product accepted and understood

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 Syariah Division
by Manulife’s current sales team, with her back ground in marketing an training

she will have the right skill set to attack this critical success factor effectively. In

her new role Yetty will report directly into the Board of Directors of Manulife

Indonesia.

In her role Yetty will also be responsible for dealing with those departments that

provide services to the Syariah division under service contract, specifically IT

and Investments.

- Product Manager of the Syariah Division. Initially one full time product

manager will be appointed whose primary responsibility it will be to work hand

in had with the sales teams, to develop sales ideas and sales tools, presentation

material that can be used to clients and other marketing tools. A suitable

candidate for this function is currently still being searched. Over time additional

product managers will be added, likely with a spread by geographic region.

- Administration manager of Syariah Division. This person will carry

responsibility for overseeing the customer administrative services of the Syariah

division. In executing this role the person will have access to the services of the

existing Manulife administrative teams, who will be providing the actual

administrative services to the Syariah division under a service contract. A

suitable candidate for this function is currently still being searched.

- Finance and accounting manager of the Syariah division. This person will carry

responsibility for the financial, accounting and reporting requirements of the

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Division. In executing this role the person will have access to the services of the

existing Manulife finance and accounting teams, who will be providing the

actual administrative services to the Syariah division under a service contract. A

suitable candidate for this function is currently still being searched.

In a diagram the management structure will look as follows;

Graph 7.1 Organization Structure

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8. Startup Expenses and Capitalization

The division will have to incur a number of expenses in the startup phase; The

Startup phase is expected to last 6 months, therefore financial projection are set up to

reflect the pre-launching period, the first 6 months of sales and than annual projections

for the 3 years after that

8.1 IT Admin system Customization

The concept of Syariah insurance is different from the conventional insurance concept

and therefore administration systems and accounting system will have to be prepared

to support this division appropriately. The expenses involved have been estimated to be

US$ 55,000; this includes expenses for IT personnel for the designing and programming

of modifications on the existing system, as well as users that will conduct User

Acceptance tests on the system.

8.2 Consultant Fees

The company will have to apply for licenses for its Syariah business, with both the

national Syariah Counsel and the Ministry Of Finance; this process is detailed and

cumbersome, and it is advisable to use the services of a Syariah Insurance consultant

with established connections at both institutions to make this go smoothly. The

consultant services include advice on product design and system requirement, as well a

training of back office personnel on the concepts of Syariah insurance business. The

consultant will be involved in the process during the whole six month of pre-sales

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 Syariah Division
period, fees will be payable as 50% up front and remainder in 5 monthly installment of

10% each.

8.3 Rent and Office admin expenses

During the pre-sales period the team will already need to be in place to coordinate the

pre-sales activities and preparations. Therefore it was assumed that the personnel rent

and office admin expenses will start at the start of the pre-sales period.

8.4 Training
Training the sales team on the concepts of Syariah insurance in general and the details

of the product in specific, will be a key factor in launching the initiatives successfully. In

the months leading up to the launch of the product intensive training session will be

organized to train all Manulife’s 4,500 agents in the country. Budgets have been set up to

support the training efforts

8.5 Marketing
A marketing approach will be defined to support the launch of the product. For

details please see the marketing section. Much of the efforts will focus in the months

just before launch and just after the launch, with a continued trail in the year to come.

Expense budgets therefore will build up towards the end of the pre-sales period.

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 Syariah Division
The total expenses month by month during the prelaunch period look as follows;

Table 8.1; Start-up cash flow

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 T otal

IT admin system customization 25,000 10,000 5,000 5,000 5,000 5,000 55,000
IT hardware purchases 5,000 - - - - - 5,000
Salary Cost & other Personnel Cost 5,630 5,630 5,630 5,630 5,630 5,630 33,780
Consultant fee 10,000 2,000 2,000 2,000 2,000 2,000 20,000
Rent 760 760 760 760 760 760 4,560
Office admin/printing 250 250 250 250 250 250 1,500
Training 1,000 1,000 2,000
Marketing 2,000 10,000 20,000 32,000
Total 46,640 18,640 13,640 15,640 24,640 34,640 153,840 Fi

8.6 Financial Plan

Once the company starts selling the cash flow projection will become more complex.

In order to project the Cash flow a number of assumptions were made with regards to

the 6 month period right after sales starts

8.7 Key Assumptions related to Sales

Sales assumptions

- 400 policies sold in the first month after the launch (8% of total Manulife Sales)

- Growing to by 100 policies each month until it reaches 1,000 policies after 6

months (20% of total Manulife Sales)

- After that the growth is projected at 25% per annum in line with Manulife

existing growth expectation

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 Syariah Division
- Annual Premium per policy IDR 7,500,000; this is based on the current

experience Manulife has on its investment linked products.

- First year persistency; 90% (this reflects the number of policyholders continuing

into a second policy year

- Second and 3rd year persistency ; 93% and 95% respectively; all persistency

assumptions are based on Manulife’s current experience

8.8 Rent and Office admin expenses

During the post-sales period operational cost will continue at a comparable level to

pre sales period.

8.9 Commission and Sales Bonuses

The Sales force is compensated for sales achievement through a commission on first

year commission and bonuses as well as other sales incentives. This will be expense

directly related to the new business, and cause a cash outflow

8.10 Acquisition and processing expenses

The processing of new policy application brings cost with it to Manulife. The cost are

estimated to be US$ 68 (IDR750,000) per policy plus 2.5% of premium. This assumption

is based on a recent expenses study conducted by Manulife on its internal expenses.

(Expenses Study 2006)

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 Syariah Division
8.11 Change in Policy holder Liabilities
Part of the premium paid by the policyholder should not be considered to be a

positive cash flow to the company as it will be regulatory obliged to set up liability to

pay for future policyholder benefits. The value of this is calculated in the projection

below in line with contractual obligation in the product.

8.12 Training
Training the sales team will continue after the launch date; refresher training and

specific training on sales ideas and handling objections form clients will be conducted.

Although the intensity will quickly scale down, it is predicted that this will need to be a

continuing effort, and therefore will create on on-going expense.

8.13 Marketing
The marketing effort are mainly focused in the month shortly pre and post launch,

therefore the budget for this peaks around this time (see details in the marketing

section) It is anticipated that there will be continued marketing efforts and a continuing

expenses is therefore recognized in the projections.

Overall projections of the 6 month period after the product is launched look as follows;

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 Syariah Division
Table 7.3; post-sales cash flow

Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Total

Income
Premium Income 272,727 340,909 409,091 477,273 545,455 613,636 2,659,091
Investment Income 843 1,904 3,186 4,690 6,419 8,375
Outgo
Commission and Sales Bonuses 93,955 117,443 140,932 164,420 187,909 211,398 916,057
Acquisition/Processing Expenses 34,091 42,614 51,136 59,659 68,182 76,705 332,386
Change in Policyholder Liabilities 81,818 103,031 124,441 146,049 167,857 189,868 813,064
Rent 760 760 760 760 760 760 4,560
Office admin/printing 250 250 250 250 250 250 1,500
Training 10,000 5,000 1,000 500 500 500 17,500
Marketing 20,000 10,000 5,000 5,000 5,000 5,000 50,000
Total Cash Flow 32,696 63,715 88,758 105,324 121,415 137,531 549,439

Source; Author

8.14 Opening Day Balance Sheet

The opening day balance sheet is mainly driven by the initial capital requirement as

stipulated in local regulations. By regulation the division will need to pay up IDR 25

billion (US$ 2,273k). Most of this money will be used to seed the unit linked funds, and

will be reflected in the opening as investments. The opening balance sheet than looks as

follows

Table 8.4 Opening Balance Sheet

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 Syariah Division
Assets Liabilities

Investments 2,092 Equity 2,273

Cash 170
Fixed Assets 11
Computers 5
Office Equipment 7
Total 2,273 To tal 2,273

Source; Author

8.15 Break-Even Analysis

The break-even analysis indicates that revenue of IDR 24,650 thousand per month is

required to reach the break-even point. The graph below shows the expected earnings

as a function of Number of policies sold. It can be observed that the division will need

to sell 500 policies in its first 6 months to reach break even.

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 Syariah Division

Break Even analysis Syariah Division

500,000

400,000
300,000
US$

200,000 Income

100,000
-
0 500 1000 1500 2000 2500 3000
(100,000)
Number of Policies

Source; Author

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 Syariah Division

Table 8.5 Break-even analysis

Break Even analysis
Number of Policies within the first 6 month 481
Revenue within the first 6 months 327,955

Assumptions
Average per policy revenue 682
Average per policy variable cost 294
estimated fixed cost in 6 months 73,560

The fixed expenses of the division consist mainly of salaries of Staff, marketing

training, office admin and rent expenses. The break even point is projected to be low as

most cost are considered variable, since the support function like policy processing will

be paid on a “per policy” basis. As the division will re-use much of the existing

capabilities this reduces the fixed expenses, and therefore the risks that might have

otherwise be associated with setting up a new company.

The average premium per policy is estimated using the current experience on unit

linked products that Manulife sells.

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 Syariah Division
References
AAJI Assosiasi Assuransi Jiwa Indonesia, annual reports 2002-2008

Anonymous (no date) Indonesian Embassy in Prague [internet] available at

http://www.indonesia.cz/index-en.php?page=indonesian-cultures (accessed on April 23,
2009)

De Waal, H. (2006) Expense Study Manulife Indonesia Internal Manulife document

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