LONDON, 9 August 2004 — Its potential is arguably much bigger than the banking sector, running into billions of dollars. Yet, Islamic insurance or Takaful is struggling to get established along the same lines as Islamic banking. Amazingly, most of the Islamic banking and finance products offered around the world today are without parallel Takaful wrap. Apologists talk about the under-developed insurance culture in the member countries of the Islamic Development Bank (IDB) and about religious concerns relating to life insurance (Family Takaful). An Islamic Fiqh Academy fatwa ruled in favor of Takaful almost a decade ago.
Malaysia currently has the most developed Takaful infrastructure and market in place with four dedicated Takaful operators in place. Bahrain and Saudi Arabia are in the process of developing their insurance markets in general including both conventional insurance and Takaful. Ad hoc Takaful companies have operated in Bahrain, Kuwait, Qatar, Dubai, Tunisia and Luxembourg for almost two decades. Perhaps, one indication of the uphill struggle which Takaful is faced is in Malaysia, where the percentage of Takaful assets of the market share of total assets of the insurance sector at end 2003 was a mere 5.6 percent. This compared with 9.7 percent of Islamic banking assets of the market share of total assets of the banking sector; and 10.4 percent of Islamic banking deposits of the market share of total deposits of the banking sector.
Malaysia’s Bank Negara has increased the minimum capital requirement of Takaful companies to 100 million ringgit, has introduced a new solvency margin framework for the industry and is reviewing the country’s Takaful Act 1984.
At an industry level, Bank Negara has promoted the establishment of the Malaysian Takaful Association as a statutory body of which all Takaful operators in the country must become members. Bank Negara expects the Takaful industry, as the conventional insurance industry, to play its role, both as a viable provider of financial security and risk transfer mechanism for the general public and businesses, as well as being an important financial institutional investor in the economy.
However, even regulators have their limitations. They can be enablers, but not drivers of industries and markets. Takaful penetration of the Malaysian insurance market is a meager 4.5 percent, compared with 36.7 percent for conventional insurance. This means that 58.8 percent of the Malaysian market effectively has no insurance of any kind. The figures for other IDB member countries are even more depressing. But for the Takaful and insurance companies this should be a challenge to relish, for the rewards are potentially massive.
However, Bank Negara is taking its responsibility as proactive enabler of Takaful seriously. It has launched an online Consumer Education Program (CEP) called InsuranceInfo, and the establishment of the Financial Mediation Bureau aimed at dealing with a broad range of retail consumer complaints against any financial institution (including Takaful operators).
These developments, it is hoped, will attract a few more customers to Takaful. Bank Negara has also launched Takaful Weeks aimed at promoting Takaful among ordinary Malaysians, and has launched a series of publications including “Fundamentals of Insurance and Takaful”; “Family Takaful”; “Motor Takaful”; and “Medical & Health Takaful”.
Malaysian Takaful operators such as Syarikat Takaful; Takaful Nasional; Mayban Takaful; and Takaful Ikhlas, are under increasing pressure to break through the insurance market and to increase the market penetration of Takaful.
In terms of vertical growth, the year-on-year growth of Takaful contributions increased in 2003 by 14 percent from 886 million Malaysian ringgit in 2002 to 1,104 million ringgit in 2003. Total Takaful assets in 2003 similarly increased by 22.1 percent from 3,626.9 million ringgit to 4,429 million ringgit for the same period. The number of Takaful agents in Malaysia had increased to 11,433 at end 2003, some 2,242 more agents than in 2002.
The largest Takaful market segment is by far Family Takaful (individual or group life insurance products, annuities, invest-linked products), accounting to 3,861 million Malaysian ringgit of Takaful assets; 201.4 million Malaysian ringgit of net benefits and claims payments; 9,893 million Malaysian ringgit of total Takaful agents; and 30.4 percent of per capita Takaful contributions. The growth trends for Family Takaful are encouraging due to an increase in mortgage reducing term Takaful and an ageing population which means more annuity Takaful plans.
General Takaful on the other hand accounted for 568.1 million ringgit of total Takaful assets: 78.7 million ringgit of net benefits and claims payments; some 1,540 of total Takaful agents; and 10 percent of per capita Takaful contributions.
