Takaful Ahead

The Islamic insurance, or takaful, industry stands somehow in the shadow of the Islamic banking sector, partly because it doesn’t have such a prevalence even in Muslim countries, and also because its business strategies and product offerings still have a lot to catch up. While there is a clear upward trajectory in the industry as demand for participation-based insurance grows in the wake of the Islamic finance boom, takaful needs to become flexible enough to react to a more sophisticated clientele in a market environment that is getting more competitive by the day.


Currently, Malaysia, Saudi Arabia and the nations of the Gulf Cooperation Council (GCC) are the countries where takaful has the greatest prevalence, while, as of late, its popularity grows in other countries such as Indonesia, Jordan, Pakistan and Nigeria.


Furthermore, big multinationals from the conventional finance sector are showing increased interest in takaful, among them many of the world’s largest insurers such as Allianz, AXA, Prudential, Aviva, Aegas and AIG, which are expanding in the takaful sector through takeovers or by joint ventures or by opening takaful windows in relevant countries.


In the GCC, takaful has grown in high double digits in recent years, according to the Global Takaful Report 2017, released at the World Takaful Conference held in April in Dubai. In detail, takaful growth in the GCC stood at a compounded annual growth rate of 18% from 2012 to 2015, while Southeast Asia reported a negative growth of 4% due to currency depreciation and Africa grew 19% in the same period.


Altogether, the global takaful industry was estimated at 14.9bn worth of gross written premiums by the end of 2015, according to the report, which points out that average annual growth is now in the range of between 13% to 14%, which should result in gross written premiums of close to 20bn by the end of 2017.


General takaful, which provides protection to participants against losses arising from perils such as accident, fire, flood, liability and burglary, makes about 83% of the global market share of takaful, while family takaful, which is designed to cover health and mortgage-related risks, occupies the remaining 17%. As per global market share, the CC remains the dominant region for takaful with a global market share of 77%, followed by Southeast Asia at 15%, while Africa and the Levant region, countries such as Pakistan or Bangladesh, as well as a few takaful operators in Western countries, together occupy the remaining market share.


Assets under management of takaful companies, which are allocated to Shariah-compliant investments only, were around 35bn at the end of 2015, and they are expected to grow to over 50bn by 2020, the report says.


There are, as mentioned, also a number of challenges for the takaful market in general. Those are tighter regulations across all jurisdictions, particularly in the GCC and Malaysia, as regulators increase their focus on consumer protection and the implementation of risk-based capital, the report says. 

Takaful companies also are pressured to increase profitability of their operations amid increasing competition in the market space. Currently, many takaful operators are burning capital by failing to implement processes for cost efficiency and productivity and improve operational, sales and marketing strategies by embracing new technologies and tap into new markets to 
increase revenue.

Two other fields where challenges have been identified are product variety and skills development. As for products, takaful offerings are still relatively limited. The existing portfolio of general and family takaful needs to be extended towards investment-linked takaful, retirement takaful, travel takaful, community takaful, legal takaful, products for certain client target groups such as high-net worth individuals and products for special risk groups, such as sportspersons or heavy workers, as well as new variants for corporate insurances for executives, start-ups, entrepreneurs and small and medium enterprises.