Islamic Insurance : Challenges Ahead

DUBAI, April 10 (Xinhua) -- How can Islamic insurances, known as Takaful, flourish and expand globally? This is the topic of the sixth edition of the two-day World Takaful Conference in Dubai which was kicked off Sunday and attended by 350 industry professionals.

In the Gulf Arab region, financial products which obey the religious rules of Islamic law, known as Sharia, have seen growth rates of more than 20 percent annually. Islamic insurances even grow by 31 percent globally in 2010, according to the Ernst and Young World Takaful Report 2011.

While all Islamic asset classes, which deny interest and money speculation, reached more than 1 trillion U.S. dollars worldwide and Islamic insurances sum up to 12 billion dollars, Marwan Lutfi, head of Business Development of the Dubai International Financial Center (DIFC) Authority, told Xinhua that there is still a long way to go.

"Whether Islamic or conventional: the Middle East is still underinsured," he said, "In Saudi Arabia, people spend only 41 dollars per year for insurances, that's only half of the amount in Argentina."

According to Lutfi, market penetration of insurances in the region stands at 1 percent, compared to 7 percent globally. Firms which offer Islamic insurance are called Takaful operators.

In the United Arab Emirates, there are 10 Takaful operators, insurers and banks which offer Takaful products, while the largest market is Saudi Arabia with 32 operators. Sixty percent of global Takaful products are Islamic life insurance called Family Takaful, while 40 percent is non-life, such as Islamic house insurance or Islamic car insurance.

Nevertheless, the Takaful industry has reached hearts and minds of Muslims worldwide, not only in the Middle East and North Africa, but globally.

In Malaysia, Egypt or Iran, Takaful is common, and even in Western countries, such as Britain and Germany, Takaful operators mushroom.

"There are 4 million Muslims in France, over 3 million in Germany and 2.4 million in the UK. There is definitely potential in Europe," said Marcel Omar Papp, director of client markets at Swiss Re in Zurich, the world's second largest reinsurer. Swiss Re has been offering re-Takaful since 2006, when it started to insure Takaful operators in Malaysia.

"But there are challenges," the DIFC's Lutfi said, "We need to educate professionals and create a new management generation. Many Takaful managers will soon reach retirement age."

Globally, there are 180 Takaful operators. "Takaful puts faith into finance, and the vast majority of Gulf Arab people are ready to invest in line with Sharia," he said.

Under Takaful, the paid insurance sums by the insured are not allowed to be invested in stocks from conventional banks, alcohol producing firms or weapon firms, as all of them are regarded un- Islamic or haram. The insured also pay a special fee called Tabarru, which serves the entire community in case there is a loss or damage one of the insured suffers.

Meanwhile, established Takaful operators reached out to the tech-savvy young generations through the Internet distribution channels. Dubai's Noor Takaful, for example, created Noor Takaful Online in 2009. "Our growth rate in 2010 was 100 percent," the firm's Managing Director Dr. Ahmed Al-Janahi said.

"Embracing new technologies and increasing marketing activities can increase the global Takaful industry to 15 billion dollars in 2012," said Lutfi.