The global takaful (Islamic insurance) industry, which has a relatively small share of about $17 billion (Dh62 billion) in underwritings compared to the $3 trillion held by the mainstream industry, needs to attract wider audience and underwrite insurance requirements of larger businesses, said delegates at the Global Islamic Economy Summit 2013.
“There are a large number of big businesses such as huge infrastructure projects, oil and gas installations and power projects including nuclear projects coming up in the region,” said Fareed Lutfi, Secretary General of Emirates Insurance Association.
“Currently the takaful industry’s role in underwriting big-ticket risks is minimal while the industry is focused mostly on life and family takaful, motor insurance and relatively small businesses. This situation calls for creation of larger re-takaful companies that have the capital size to cover larger size risks.”
While the creation of new takaful giants is a solution, industry players said the merger of existing players and the entry of insurance multi-nationals into the business could help the industry to achieve critical mass in the Islamic re-insurance business. “Currently there are just 16 re-takaful companies,” said Firas El Azem, General Manager of Takaful Re. “These companies have the capacity to cover small- to medium-size risks. But when it come to larger risks the size is a constraint and it needs to be addressed.”
The total size of the insurance business in Islamic countries is estimated at $80 billion, with takaful accounting for less than $20 billion (including the industry in Iran). Industry representatives said that while there is huge growth potential for the takaful industry within the core markets such as the Middle East, Africa and south-east Asia, industry representatives said, takaful should look beyond the 1.2 billion Muslims and appeal to a wider global audience.
“In Malaysia, the Chinese populations constitute a big component of the takaful customers,” said Sohail Jaffar, Deputy CEO of FWU Global Takaful Solutions. “In the UAE there is a growing segment of non-Muslim takaful customers such as non-resident Indians. The industry should offer innovative insurance solutions that are competitive.” While Saudi Arabia, the UAE and Malaysia hold the lion’s share of the takaful market, the acquisition of market share has not necessarily translated into profitability in many instances. Panelists at the summit said most takaful companies in the region are relatively young and are at the early stage of their business development. Most operators have yet to achieve critical business volume despite incurring substantial establishment costs over their formative years.
Industry representatives said there are a number of untapped business areas such as the private pension market, insurance-linked products in education and longer-term saving schemes. However, all agreed that the GCC region requires comprehensive regulatory reforms to tap into these business segments. “Private pension schemes are virtually non-existent in the region,” said Hatim Al Tahir, Director Islamic Finance Knowledge Centre, Deloitte. “This is an area where takaful has huge growth potential if right regulatory framework is in place.”
Given the short-term nature of the work contracts of expatriates in the region, experts suggested that regulations should be tailored to suit portability of insurance schemes to their home markets or offshore financial centres.