COMMENT

May 2006
NewHorizon
2006 is seeing a resurgence in the drive for takaful (Islamic insurance) business in the various segments of the takaful industry in Muslim coun­tries, in particular non-general busi­ness, which is still in a nascent stage compared to its more mature Islamic banking counterpart. Takaful is still facing some fundamental questions about its performance and future. There also remains the perception among many Muslims on whether insurance is permissible under Islam. There are also the key issues of Shariah compliance and purifica­tion. Nonetheless, takaful offers the only alternative for Muslims reluc­tant to look at conventional insur­ance on account of their strong reli­gious belief.

The Institute has always believed that takaful has enormous potential, largely untapped, among the vast Muslim population. Its benefits for savings to the people and the nation as well as a means to alleviate poverty in countries with vast Muslim population are long lasting. Once people understand about taka­ful they would support it. That would apply equally to non-Muslims attracted by takaful’s ethi­cal values and considerations.

The immediate challenge for takaful operators is for better coverage, shared experiences and collabora­tion in building the ideal model and support for the movement. Trained staff with deep knowledge and understanding with the skills in sell­ing takaful products and schemes should be the common key objec­tive. Here, there are lessons to be learnt from conventional insurance.

Takaful business is moving beyond its formative years and as Muslims seek to claim back their heritage, it is likely to have an impact on the global insurance industry in the years to come with the potential of growing rapidly from being a regional business to a global move­ment. According to the 2005 Global Takaful Review, the takaful industry is projected to grow at 20 per cent per annum during the next decade. Total worldwide takaful premiums covering both non-life and life insurance are expected to reach $7.4bn by 2015. Global insurance statistics indicate that the insurance penetration and per capita premium density in the Muslim world is com­paratively low and this would sug­gest that there is a huge market for Islamic products among Muslim clients provided the industry is pre­pared to offer consumers a wider range of products and services that is more affordable and simple to understand as an alternative to con­ventional insurance products.

Conventional insurance operators have already been quick to see the potential for takaful business and the challenge for them is to retain their clients who might wish to move to Islamic insurance. The con­ventional insurance market seems to have adapted well to the takaful market establishing Islamic insur­ance windows. The well established conventional insurance operators with their professional expertise and resources as well as investment in R&D are aiming to take a larger share of the takaful business from the indigenous takaful operators. To compete successfully the indige­nous takaful operators will have to secure the necessary capital funding to build the trust of consumers and also come out with innovative Islamic insurance schemes and solu­tions that offer Muslims a genuine alternative to conventional insur­ance while at the same time over­coming their concerns and percep­tions on the permissibility of insur­ance in Islam. In this way the taka­ful operators will be able to pene­trate the large Muslim population who has not taken up conventional insurance on ideological grounds.

One of the important developments in the insurance industry is the advent of bancassurance that allows banks and other financial institu­tions to distribute life insurance, pension and general insurance prod­ucts alongside banking products. Consumer banking is the largest business growth area and the access to the banks! captive customer base has given opportunities for more players in packaging life insurance. With the expansion in Islamic retail banking the takaful operators seek­ing further growth of their business will also need to work more closely with Islamic banks and financial institutions to sell takaful products alongside Islamic banking products and services. To achieve sustained growth there is a greater need for collective effort and commitment by the industry to reach consensus on key areas such as: the common per­ception of what is a takaful product, better educated sales force, public awareness, consistent rules and practices, extensively researched products, limited documentation, simplicity and affordability, and professional expertise to manage the risks.

........

..................