An examination of perceived disclosure of takaful operators in Malaysia

Abstract

Takaful is still in its early stages as compared to conventional insurance with regard to regulatory maturity and market penetration (EY, 2013). In Malaysia, Bank Negara Malaysia has issued guidelines to ensure the operational efficiency of takaful operators, safeguard the interests of participants and promote uniform practices between operators. From a reporting perspective, in the Financial Stability and Payment Systems Report 2013, Bank Negara Malaysia (2014) mentioned the importance of having meaningful disclosure to protect participants. However, it did not provide details of the elements of meaningful disclosure. There is no specific guidelines or standards of what should be disclosed and how detailed the items should be disclosed. Takaful operators have more knowledge in the operational aspect of takaful, compared to the participants. Authorities try to harmonise all the possible variations and gaps between takaful operators (preparers) and participants (users) for the benefit of the industry. Any gap between what is expected to be disclosed (desirable) and what is actually disclosed needs to be analysed in order to provide more information relevant to the users and to standardise the disclosure level. There are four objectives of the study. The first is to examine what meaningful disclosure is to authorities. The second is to examine what meaningful disclosure is to users (the desired). The third is to examine what meaningful disclosure is to preparers (the actual) and the fourth objective is to analyse the gaps between the desirable and the desired (authorities and users); the desired and the actual (users and preparers) and between the desirable and the actual (authorities and preparers). A checklist was developed to represent the desirable level of disclosure based on various requirements and standards guided by accountability theory. To measure the desired level of meaningful disclosure, the checklist was distributed to takaful agents to examine their perception of meaningful disclosure based on decision usefulness theory. The disclosure checklist was employed as a benchmark to evaluate the actual level of meaningful disclosure in takaful operators' annual reports and websites. The gap analysis was conducted among the desirable, the desired and actual level of meaningful disclosure based on institutional theory. There are significant differences among all the gaps. Additionally, the average level of actual mandatory disclosure is 95% while average level of voluntary disclosure is 38%. It is hoped that the findings will assist authorities in formulating guideline or policy pertaining to meaningful disclosure in takaful industry in Malaysia.