GIFF 2012 Report: Global Takaful prospects

The global Takaful industry continued to demonstrate a strong growth rate in 2010 at rate of 22.9 per cent ($13.7 billion) as compared to previous year (in year 2009 growth rate stands at 17.7 per cent with total contribution value of $11.1 billion) according to the World Islamic Insurance Directory 2012. The Gulf Cooperation Council countries (GCC) market contributed $5.7 billion, Middle East (Non-Arab) at $5.3 billion and South East Asia (SEA) contributions stood at $1.9 billion.

Amongst the key markets, Malaysia, Indonesia and UAE achieved growth rates of over 24.0 per cent, whilst Saudi Arabia saw its gross contributions increase by 9.7 per cent. In 2010, growth in the GCC slowed to 16.3 per cent, from a CAGR of 44.7 per cent in 2004-2009, as the implementation of compulsory medical Takaful in Abu Dhabi and Saudi Arabia was completed earlier.

The report, presented at the Global Islamic Finance Forum in Kuala Lumpur, showed that Saudi Arabia remains by far the largest Takaful market after Iran, contributing $4.4 billion or 32.0 per cent of the industry at an average contribution per operator of $141.0 million. Malaysia grew 24.0 per cent to reach contributions of $1.4 billion at an average contribution per operator of $141.0 million. UAE ranked third with contributions of $818.0 million, growing at 28.0 per cent. Outside of GCC, Middle East (Non- Arab) and SEA, Sudan is the most significant market, with contributions totalling $363.4 million, growing by 7.0 per cent in 2010.

In terms of Takaful models applied, Wakalah-Mudharabah (hybrid model) remains one of the most widely applied models with at least nine countries adopting it. This is followed by (Wakalah with and without fee) and Mudharabah. The past few years has seen certain countries moving away from the latter model to the hybrid model which provide certain advantages over the other such as the upfront Wakalah fee which helps to incentivise Takaful agents to recruit more participants.

Standardisation of Takaful models applied is highly welcomed as it will facilitate cross border selling and making it easier for the customers to understand the product. Nevertheless, the emergence of different Takaful models across jurisdictions presents opportunities for greater understanding and acceptance as different jurisdiction may experience different impediments to implement certain practices.

The Takaful industry is facing strategic challenges as the market establishes itself. Significant investments are required to establish the Shari’ah board, develop technical expertise on Shari’ah compliance, train staff, create brand awareness among customers, as well as implementing the appropriate technology. To ensure the success and sustainability of the Takaful and ReTakaful industry, the companies will need to work with their respective national regulator to address impediments facing the industry. Despite all the challenges, Takaful is a viable alternative to conventional insurance and is expected record gross Takaful contribution of $17.2 billion by end of 2012.

Factors Supporting Takaful Growth

• Growing demand for Shari’ah-compliant products
• Abundant liquidity
• Increasing levels of foreign direct investment
• Growth of retakaful capacity
• Growth of high quality sukuk papers for takaful companies to invest in
• Increased awareness amongst consumers
• A more efficient distribution channel of takaful products
• Growth in other financing products such as housing financing which leads to increase in housing Takaful

(C.P.I Financial / 22 Sep 2012)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com