Takaful Corner
Potholes In The Streets Of Gold?
| January 21, 2010 by Clyde & Co
This section explores the latest trends in the rapidly burgeoning global takaful (shari’a-compliant insurance) market which is estimated to eventually grow to between US$7bn (Swiss Re estimate) and US$15bn (Takaful Re estimate) by 2015.
To the casual observer the Islamic insurance market has been a series of positive stories over the last few years. There has been an explosion in the growth of takaful operators, with a number of the major insurers entering the market, including Allianz, AIG, Munich Re and Hannover Re. Premium growth has been staggering, with some players reporting growth of 50 per cent or more over the last few years.
Has the current economic climate taken the shine off these developments? There is no doubt that the relative security of the investments used to underpin a takaful operators’ funds, which inevitably differ from those used by the conventional insurance market due to the requirements to comply with shari’a, has been a focus of debate in recent months. Profit margins have been eroded as a consequence of the dependence (some would say over-dependence) on equities and real estate and the shortage of long-term liquid investments.
There have also been calls for renewed focus on producing technical underwriting profits. However, there is no doubt of the potential for growth of the takaful industry with roughly 1.5 billion Muslims around the world being underserved by the insurance sector, coupled by the fact that many markets in which takaful would be attractive to consumers in the Muslim world have traditionally low penetration rates for insurance, takaful is rightly seen as an Islamic financial product with a bright future.
At the World Takaful Conference held in Dubai in April, Ernst & Young presented their report focused on the future of takaful. It was reported that by 2012, total takaful contributions could reach US$7.7bn per year. Even higher projected growth had previously been reported. HSBC, for example, estimated the global takaful market will be worth US$14.4bn by 2010. The growth is spectacular when one considers takaful contributions (premiums) were reported as being US$1.4m per year in 2004 rising to an estimated US$3.4bn in 2007, the majority of those contributions coming from within the GCC with south-east Asia following behind.
In a sea of statistics, many of which are often contradictory, it is helpful to remember simply that global takaful contributions are less than one per cent of the total insurance premium spend annually, despite the fact that Muslims are 24.79 per cent of the total global population. Inevitably there are questions as to what proportion of this population is accessible to insurers. The fact remains that in key markets, such as the Middle East, insurance penetration remains low. It is estimated that the UAE is massively under-penetrated with insurance premiums in 2007 being reported as 56 per cent below GDP-adjusted levels in the non-life sector and 88 per cent in the life sector.
A brief history of takaful
The world’s first takaful company, the Sudanese Islamic Insurance Company was established in 1979. Since then, to date it is reported that there are about 124 takaful companies as of January 2009 and 38 takaful windows (ie, conventional insurers undertaking takaful business through a “window”, which allows for safeguards and separation of contributions and assets).
