Alhuda CIBE - The World of Takaful by Dr. S. J. Malaikah

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 1

The World of TakafulCurrent Achievements

&Future Outlook

By Dr. S.J.MalaikahChairman – BEST Re

Introduction “Takaful” is the brand name for the

Islamic alternative to conventional insurance.

Basic Principles

Very similar in nature to co-operative and mutual insurance,– it endorses their basic principles of

solidarity and profit-sharing– whilst retaining a capitalistic base

(shareholders) and above all– Ensuring compliance with the Islamic

Shariah rules and principles

Shariah Compliance Shariah compliance is an essential

element in Takaful insurance . It is ensured through a Shariah

Supervisory/ Advisory Board at the level of each Takaful company.

The role of the Shariah Board is vital in meeting the specific demand of a public who would not insure otherwise.

Takaful Pioneers

Takaful started some 27 years ago in the Middle East with the launching of two companies:– The Islamic Arab Insurance Co. (IAIC)

in the UAE and– The Islamic Insurance Co. of Sudan

But it took some time for the movement to take shape.

Takaful Pioneers

Later in 1984, Malaysia played a pioneering role in setting the first Legal framework specific to Takaful (Takaful Act).

This was instrumental in the successful launching of the Takaful movement in Malaysia and in other countries of South East Asia.

Other Islamic/ Takaful Legislations

Other markets such as the Sudan and Iran have Islamic regulatory environments and became naturally Takaful markets.

In the Gulf countries specific Takaful legislations are coming through in Bahrain and in Saudi Arabia

Takaful Today

From a handful of operators two decades ago the Takaful movement has blossomed into a fast growing phenomenon in many Muslim countries with very promising prospects in other countries with a large Muslim community.

Takaful drivers

This movement is driven by – a strong demand from a public who

would not insure otherwise (because of religious beliefs); and

– The successful development of Islamic banking institutions providing capital and Islamic financial instruments for asset management and investment.

Takaful Drivers

Islamic banks and financial institutions play a strategic and important role in the distribution of Takaful products (especially Life Takaful Products).

Just as Bancassurance played an important role in the distribution of personal lines insurance products Bancatakaful is an important driver for Takaful.

Takaful Operators

The number of Takaful operators worldwide is now estimated at:

60 Takaful companies 3 Retakaful companies This number may reach 90 + if so-

called Takaful windows are to be included.

Takaful Premium Takaful is one of the fastest

growing segments in insurance (at around 20% pa. on average)

World Takaful contributions are conservatively estimated at around US$ 3billions, of which:– 60% General Takaful– 40% Family Takaful

Takaful Geographical Spread

South& East Asia : 56% Middle East : 36% Africa: 7% Europe, USA & Others: 1%

Main Markets

Malaysia Indonesia Iran GCC countries Other Arab countries Other Asia Pacific

General Vs Family Takaful In the Far east region Family Takaful

was and still is the driver of the segment in terms of contributions and growth;

Whereas General Takaful leads the way in the Middle east markets.

This trend is slowly changing with the advent of new highly capitalised Takaful players in the GCC determined to develop Family Takaful products.

Personal Lines Vs. Corporate Accounts

Current Takaful portfolios are in most cases geared towards personal lines with the largest percentage derived from Motor business.

Diversification towards Corporate accounts is a big challenge ahead

The Challenges ahead

Despite a remarkable breakthrough and a dynamic and sustained growth, there are challenges facing the Takaful industry.

The business model dilemma The existence of two business models:

Mudharabah (Profit & Loss sharing) Wakala (agency contract with a performance fee

element to replace surplus sharing) And the introduction more recently of the Waqf

Could create an uneven / unfair business environment to operate

Need to reach a consensus internationally on a common and standard Takaful business model

Takaful Best Practices Regional Takaful institutions and

organisations need to come together internationally in order to promote and standardise best practices within the industry:– Islamic Financial Services Board (IFSB)– ASEAN Takaful Group (ATG)– International Takaful Association (ITA) – Accounting and Auditing Organization of

Islamic Financial institutions (AAOIFI)

Retakaful Solutions

Takaful operators are heavily reliant on reinsurance.

There is a high need for ReTakaful solutions

Retakaful Solutions

There are currently 3 Retakaful operators in the market providing services to primary Takafuls: – Asean Retakaful International (L) Ltd.

(Malaysia)– BEST Re (Tunisia)– Takaful Re (U.A.E.)

Retakaful Solutions

Need to create a mechanism for an active role of Retakaful in the Islamic financial system;

Need to promote a strong Retakaful operator capable of playing a leading role in providing first class security, capacity and value-added services.

Retakaful Solutions

The idea of an International Retakaful Syndicate/ Consortium was launched recently in Langkawi (Malaysia) at the 2nd International Symposium on Takaful.

Need to promote a Retakaful hub capable of hosting the maximum number of Retakaful offers.

Future Outlook

Despite the remarkable growth rate recorded by the Takaful industry, penetration is still far below the enormous market potential offered by the Muslim community worldwide (23% of the total world population).

Growth Outlook

World Muslim population is estimated at 1.5 billions, of which around 97% are based in Asia and Africa.

A two-digit growth in the range of 15% to 20% can be reasonably sustained for at least the next 10 years in the existing markets (Far and Middle East).

New Takaful Frontiers

Markets like Europe, North and Latin America, Central Asia, Australia where large Muslim communities live are huge untapped reservoirs;

The recent opening towards “Islamic windows” in the banking sector in Europe is likely to be followed by “Takaful windows” initiatives.

Takaful at Lloyd’s

The recent opening at Lloyd’s of a Takaful dedicated syndicate (Creechurch) is a clear indication that the segment is promising.

Takaful, Cooperatives & Mutuals

International institutions such as the UK-based International Co-operative and Mutual Insurance Federation (ICMIF) recognised the Takaful movement as part of the global cooperative & mutualistic paradigm.

ICMIF is firmly committed to supporting the development of Takaful schemes in Muslim and Non-Muslim countries.

Takaful, Cooperatives & Mutuals

“Folksam”, an ICMIF member, is actively building affinity with the Muslim community in Sweden by offering Takaful schemes and products.

In France, Some mutuals are showing interest in Takaful products.

Takaful Products to Non-Muslims

Takaful Products are not exclusive to Muslims.

Competitively priced and sold through the right channel it could attract any consumer irrespective of their origin or faith.

Conclusions

Despite the challenges facing this “new” industry, exciting times are ahead once the latent potential is unleashed.

The success of Takaful largely depends on that of Islamic Financial institutions on a global basis.

Conclusions

There is a need for – More strategic alliances and synergy

between Islamic Financial institutions;– More cooperation between Islamic

operators at an international level– A better legal and regulatory

environment– Better competencies in Islamic Finance.

Alhuda CIBE - The World of Takaful by Dr. S. J. Malaikah

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