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TalkingPoint: Outlook For Shariah-compliant Insurance In 2012 « Back
March 2012
 
FW moderates a discussion focusing on the outlook for Shariah-compliant insurance between Sohail Jaffer at the FWU Group, and Anita Menon at KPMG in Malaysia.



FW: Reflecting on the last 12 months, have you seen the continued spread of Shariah-compliant insurance, or takaful, around the world? What new markets seem to be particularly active?

Jaffer: The takaful market is currently concentrated in Malaysia and the Middle East where it has been experiencing significant growth rates. Global gross takaful contributions grew by 29 percent in Southeast Asia in 2009, and by 31 percent in the Gulf Cooperation Council (GCC) whose ranks Oman has recently joined as the first takaful operator to start business this year. Takaful has undergone a significant internationalisation phase and managed to cross borders. Awareness and acceptance of takaful are also growing in regional markets such as Indonesia, Brunei, Turkey, India, and Pakistan. Takaful in Africa grew 26 percent in 2009 and the continent is witnessing considerable developments, with Kenya launching its first takaful operator in January of last year, and more recently with the acquisition in September 2011 of Takafol South Africa by Absa group, a leading financial institution majority-owned by Barclay’s. The Shariah-compliant insurance industry is also expanding in secular and Muslim minority markets like North America and Europe, especially in the UK, France, Luxembourg and Germany

Menon: Despite growing concerns for the global economy, the Shariah-compliant insurance sector continued to expand with new takaful companies, joint ventures and new legislations dominating industry news. In 2011, the global takaful industry was valued at US$12bn, recording a remarkable growth of 32 percent on the previous year. The GCC market recorded impressive growth, with 70 percent of the market share coming from GCC countries, while Southeast Asian countries led by Malaysia accounted for approximately 21 percent of the global takaful market. GCC markets such as Saudi Arabia, Qatar, Bahrain and UAE have been tipped to become high growth markets along with the emerging markets, Oman, Kenya and Jordan. However, takaful penetration still remains low globally. Malaysia, one of the major takaful hubs, has found it difficult to increase penetration levels vis-a-vis conventional insurance, and accounts for only 10 percent of the insurable population. Growth in this sector has come on the background of mounting challenges posed by high competition among takaful operators, declining underwriting profits and high risk investment portfolios.

FW: In what ways are products being developed or altered within the Islamic insurance market to meet the needs of a growing customer base?

Menon: As in the case of any Islamic product, the basic tenant that drives takaful is Shariah compliance.  The takaful industry is mainly segmented between family and general takaful. Family takaful in particular is identified as the growth driver where it offers participants with an alternative investment tool and operators with better financial returns compared to general takaful products. Family takaful products tend to be popular in Southeast Asian countries while they are only starting to pick up in the GCC market, where the growth potential is very positive. As the takaful market globally is still in its early stages, new products will take some time to develop although some family takaful products are increasingly attractive to both Muslim and non-Muslim customers in secular markets on the basis of their pricing and returns. Family takaful products – for instance, savings, retirement and critical illness – offer new markets and diversification opportunities for takaful operators from their conventional counterparts. Diversification is critical for the industry to compete against well experienced and resourceful conventional insurers. Takaful operators should also explore new insurable needs, appealing to customers who look for ethical insurance products.

Jaffer: In the aftermath of the global financial crisis, banks realised that they needed to embrace a more customer-centric approach. Financial institutions needed to take into consideration the savings and protection needs as well as the concerns of their customers. This led to the customisation of bancatakaful product offerings and their bundling with deposits, mortgages, and structured investment products. Takaful products are also becoming more and more competitive. Products include credit insurance, savings and protection, rider benefits such as accident, disability, travel benefits, retirement, and annuities. More personalised products are being introduced, including ladies plans and affluent plans with individualised protection including critical illness cover, travel cover and children protection.
 
FW: Could you explain the various distribution channels and networks being utilised to deliver takaful to more customers around the world?
 
Jaffer: Distribution strategy is a major success factor in the growth of Shariah-compliant insurance. Takaful is being distributed across a variety of channels such as agencies, direct sales and virtual marketing, but banks are the most effective channel of distribution for these kinds of products and services. Indeed, partnerships between banks and insurance companies bring many advantages, including an increase of sales opportunities, optimising the sales force of each player, customer segmentation, brand recognition, competitive advantage and differentiation, and decreased operational costs through the adoption of integrated technology.
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