Takaful Corner

The next phase of growth

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.

When surveying the global Islamic insurance market in its broadest sense (i.e. including the Saudi Arabian and Iranian models), takaful contributions worldwide grew 25 per cent from US$7.5bn in 2007 to US$9.4bn in 2008, according to figures released by Takaful Re. The DIFC-based retakaful player expects a similar level of growth to have been recorded in 2009.

This was mirrored by an increase in the number of Islamic insurance companies to 190 worldwide, with the highest regional concentrations in the GCC (77 operators) and the Far East (37 operators), followed by Africa (29) and Iran (18) – according to the World Islamic Insurance Directory 2010. However, despite efforts to systematically compile reliable and consistent statistics about the sector, there is still significant divergence between sources and the methodologies used.

Nevertheless, it is clear that growth in the takaful sector continues at a healthy pace and certainly faster than the conventional insurance sector. Speaking at the World Takaful Conference in Dubai in April, Dr Saleh Malaikah, CEO of takaful giant SALAMA, concluded that the Islamic financial services sector as a whole had weathered the worst of the financial crisis in 2009 and emerged relatively unscathed. The announced delay of Dubai World’s debt repayments in November 2009 – specifically concerning the maturation of the US$3.5bn sukuks issued by its real estate subsidiary “Nakheel” – tested the credibility of the Islamic financial services sector but did not rock its foundations.

The fortunes of the takaful sector are largely intertwined with those of the growing Islamic banking sector, with a recent report from Standard & Poor’s noting that assets of the top 500 Islamic banks reached US$822bn in 2009. The long-term growth drivers for takaful are similar to those of the Islamic banking sector in that favourable demographics (including young and rapidly growing Muslim populations), increasing affluence (particularly in the GCC) and a growing desire for shari’a-compliant options will fuel demand.

“The greater availability of organised savings solutions, financing and mortgage products create a natural demand for family takaful (Islamic life insurance) which is likely to grow at a relatively faster pace than general takaful,” said Malaikah. However, growth patterns in the MENA region are proving to be quite distinct from those seen in the Far East where family takaful is making faster headway.

According to estimates from Takaful Re (based on 2008 data), the split of total takaful contributions in the MENA region by lines of business are: family and medical (49 per cent), motor (24 per cent), property and accident (18 per cent) and marine and aviation (nine per cent).

In contrast, family and medical lines of business in the Far East account for as much as 71 per cent of total takaful contributions, followed by motor (14 per cent), property and accident (13 per cent), and property & accident (two per cent). The split is more even on a global level with motor accounting for 37.5 per cent and family and medical accounting for 36.1 per cent.

New opportunities
Commercial takaful penetration remains low, even in key markets such as Malaysia and Saudi Arabia. According to a report from Swiss Re: “The market for large corporates and commercial businesses offers significant opportunities for takaful, particularly for investment projects handled by Islamic banks. This segment is currently insured by conventional insurers in most cases.” This view was echoed by Sandeep Sachdeva, global head of Amanah Commercial Banking, HSBC Amanah, who said: “The commercial segment should form a significant part of takaful’s growth plans. There are approximately 900,000 SMEs in KSA and 600,000 SMEs in Malaysia… takaful penetration in these remains miniscule”.

Microtakaful schemes are also seen as an effective means of reaching out to vast underinsured populations in many Muslim countries. “Microtakaful can be effective even in markets with little experience of takaful, as long as products, procedures and policies are simple, the premiums are low, the administration is efficient and distribution channels are innovative,” said Shahril Azuar Jimin, CEO, Etiqa Takaful Berhad.

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