By Anamta Shareef Rehana Osama Qadri Waqas Latif

Agenda

Islam and Insurance Insurance Industry in Pakistan Islamic Insurance Takaful In Pakistan Products Offered Conventional Insurance vs Takaful Research Findings Recommendations

Islam and Insurance

As a complete religion, the teaching of Islam encompasses the essence of peace, economic well-being and development of the Muslim. Islamic insurance was first established in the early second century of the Islamic era. This was the time when Muslim Arabs started to expand their trade to India and other countries in Asia.

Due to long journeys/voyages, they often had to incur huge losses.

Cont

Based on the Islamic principle of mutual help and cooperation in good and virtuous acts, they got together and mutually agreed to contribute to a fund before they started their long journey. The fund was used to compensate anyone in the group who suffered losses through any mishap. The Europeans copied this, which was later known as marine insurance.

Insurance Industry in Pakistan

Pakistan's life insurance sector was nationalized in 1972. Until 1992, when the government opened it to private sector participation. The Government standardize and reduce premium rates and encouraged coverage among a wider segment of the population. Terrorism has boosted the insurance sector in Pakistan.

Insurance Companies in Pakistan

Conventional

East West Insurance Company Limited East West Life Assurance Company Limited New Jubilee Life Insurance Company Limited Beema-Pakistan Company Century Insurance Company Premier Insurance Limited Eastern Federal Union State Life Insurance corporation of Pakistan Habib Insurance Company Limited

Cont
Takaful

Takaful Pakistan Pak-Kuwait Takaful Dawood Family Takaful Pak-Qatar Takaful

Islamic Insurance

Ibn Abidin (1784-1836) was the first scholar in the Muslim world to discuss the meaning and legal character of insurance. Recently, however, a consensus was emerging for adapting insurance in the name of takaful and solidarity. Several Islamic takaful and solidarity companies have been established since 1979.

Cont

A prime purpose of Takaful system and its products is to strike the right chord with Muslim customers who may find conventional products unacceptable and buy them reluctantly.

In 2002 there were an estimated 41 companies offering Islamic Insurance.

The number of takaful companies more than doubled to 87 companies in just four years (by mid 2006) across 29 countries.

Cont

There are approximately more than 108 Takaful and 6 Re-Takaful companies operating globally. Out of these companies 60% are General Insurance Companies. 40% are working as Life and Family Insurance Companies.

Takaful In Pakistan

The takaful market is still in a formative stage. Market projections estimate growth rates between 15% and 20% over the next 10 years. Pakistan is among the top 10 most populous nations in the world. This makes it a very fertile market for Takaful,

Cont

Pakistan saw its first Takaful operator, in the General side, start in 2006. Another two operators in General and two in Family have entered the picture. Dawood Family Takaful being the most recent entrant. Takaful is not just another tool for risk mitigation and financial protection.

It is a system which works as a source of good for those that use it and the community at large.

Products Offered

Fire Takaful Marine Takaful Motor Takaful Engineering Takaful Misc Takaful

Fire Takaful

Riot and Strike Damage Explosion Atmospheric Disturbance Earthquake and Fire shock Aircraft Damage Terrorism (Separate Policy)

Marine Takaful

The Marine Takaful Policy offers a wide range of coverage to all imports, exports. Inland transits by sea, air and land from the point of dispatch to the point of delivery.

Motor Takaful

Section 1: Undertakes to reimburse the expenses incurred for:

Repair/replacement of the parts of the vehicle.

Pays the market value of the vehicle in case of a total loss provided that the originating cost of such damage is an accident.

Cont
Section 2: It covers the legal liability to third party
personal injury and property damage arising out of an accident involving the insured vehicle. Optional extensions
The extensions that are offered are as follows: Loss of accessories. Increased legal liability towards property damage of third party.

Engineering Takaful

Electronic Equipments Policy Machinery Breakdown Policy Boiler and Pressure Vessel Policy Erection All Risks Policy

Misc Takaful

Burglary Impact Damage Personal Accident

Conventional Vs Takaful

Cont
Its free from interest (Riba), gambling, (Maysir), and uncertainty (Gharar). All or part of the contribution paid by the Participant is a donation to the Takaful Fund, which helps other Participants by providing protection against potential risks. Companies are subject to the governing law as well as a Sharia Supervisory Board.

Takaful

Insurance includes elements of interest, gambling, and uncertainty. The premium is paid to conventional insurance companies and is owned by them in exchange for bearing all expected risks.

Conventional

Companies are only subject to the governing laws.

Cont

The guiding principle behind commercial insurance is that it is based largely on commercial factors. Takaful on the other hand is guided by the principles of Islam, which aims to establish a social order based on universal brotherhood. In Islam

'A Muslim is the brother of another Muslim; he neither wrongs him, nor leaves him without help, nor humiliates him'

Cont

Conventional insurance is not transparent. Insurance companies invest in ventures that may involve interest or some form of activity which goes against the teachings of the Shari'ah. Conventional insurance is not mutually beneficial, as certain individuals (shareholders, for example) benefit at the expense of others.

Commercial insurance companies exist to serve the interest of shareholders first, not policyholders.

OUR RESEARCH

Abstract

The topic of our research was Awareness about Takaful. This research gave us an idea as to how many people are aware about the term takaful and know about its mechanism.

Sample Size

A sample size of 100 people was selected for the quantative research and a group of 6 people were interviewed for the qualitative evaluation.

Term Insurance Awareness

term "insurance awareness"

1%

% of people Aware about Insurance % of people not aware

99%

Awareness Of Mechanism
Awareness Of Mechanism

36% % of people Aware % of people Unaware 64%

Assets Insured
Insurance Of any Assets

14%

% of people insured any assets % of people who did not

86%

Awareness of term Takaful

Awareness Of term "Takaful"

34% % of people aware of it % of people Unaware 66%

Awareness Of Mechanism
Awareness Of its Mechanism 4%

% of people Aware % of people Unaware

96%

Why people dont buy Takaful!

0% 32% Why havent used takaful Why havent used takaful Not aware by the mechanism Why havent used takaful Do not trust takaful 21% Why havent used takaful treat takaful and insurance as same

47%

Findings

Findings

A mere 34% of the respondents actually knew the term takaful as compared to 99% of them who knew about term insurance. There is a day light between the two. Much like Islamic banking the concept of Takaful has not yet been fully understood by the local people. Our small research is evident to this fact.

Cont

According to our research almost all of the respondents are aware of the term insurance and can recall almost all of the insurance providers in Pakistan.

Only 14% of the people how ever have insured any assets that they have under the conventional insurance system, there are a number of reasons for that.

Cont

Since few people know about Takaful, its mechanism and policies are again not understood, not being aware of or in extreme cases misinterpreted. Because of the lack of promotional campaigns and marketing, Islamic system of takaful has yet to establish its prominence amongst the people of Pakistan. Sample of 100 is very few to judge but even then the general mind set clearly indicated lack of awareness and knowledge about the system itself.

Recommendations

Recommendations

Takaful operators should follow best practices with great commitment. Awareness amongst general public is required because of the following reasons. Low literacy rate. Misconception about traditional Insurance. Low insurance penetration.

1. 2. 3.

Cont

Organizing a national road show by conducting awareness interactive programs in Islamic Banking and Takaful. Massive Advertising Campaign should be launched country wide to improve on recall of the term takaful its policies and procedures.

Conducting Seminars in educational Institutions to spread awareness from grass root.

Cont

People generally tend to opt for insurance coverage only where it is mandatory by law. Takaful likewise, can build up public confidence and once that is achieved, people will voluntarily opt for the various takaful options in their individual as well as collective interests.

The pioneers Pak-Qatar Takaful themselves know the importance of good marketing and public awareness!

Apart from providing high quality products in line with Shariah principles which meet the needs of the public, we need to work hard for creating awareness for Takaful amongst the community

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