Takaful

Opportunities & Challenges for the Pakistani Market

Azeem Pirani Head of Marketing & Alternate Distribution Pak-Qatar Family Takaful
11th August 2007

August 11th, 2007 Avari Hotel, Lahore

Agenda
Takaful A product and an ideology Differences between Takaful & Insurance The Pakistani Market Overview Challenges Opportunities Our responsibility Conclusion

11th August 2007

Takaful- A product and an Ideology

Takaful comes from the Arabic root-word kafalaguarantee Takaful is not only a tool to mitigate loss or to make halal profits. It is an ideology which promotes Solidarity and joint guarantee Self reliance and self sustainability for community well being Assistance to those that need it Community pooling system

11th August 2007

Differences between Takaful & Insurance

What is Insurance? A tool for Risk Mitigation and Financial Protection A tool to enable people to save (Life Insurance) Key differences between Takaful and Insurance are: Risk Sharing Vs. Risk Transfer Wakeel Vs. Guarantor Ameen Vs. Owner Different type of Contract

11th August 2007

Differences between Takaful & Insurance (cont.)

Issue
Basis Laws

Conventional Insurance
Risk Transfer Secular/Regulations

Takaful
Co-operative risk sharing Shariah & Prudential regulations

Ownership Mgmt status Form of Contract

Shareholders Company Management Contract of Sale

Participants Operator Cooperative, Wakala or Mudarbah with Tabarru (contributions)

Shariah compliant Participants account

Investments Surplus

Interest based Shareholders account

The Pakistani Market An Overview

Pakistan - Overall Population: 6th amongst global nations. 166 m. Population in 2015: Still 6th . 193 m. Urbanization: Presently at 33% Urbanization by 2015: 39% GDP Per Capita: $753

11th August 2007

The Pakistani Market An Overview (cont)

Pakistan Insurance Market Penetration of Insurance Pakistan: 0.7% of GDP India: more than 3% of GDP Iran: approx. 1% of GDP Family & General Companies Few Innovative Products. Very recent change in this area

11th August 2007

The Pakistani Market Challenges for Takaful

Resistance to Insurance, and its benefits, due to different reasons Conservative spending habits Ignorance of its benefits Products which do not meet buyers needs Religious reasons Tawakkul issue
Tie your camel first, then put your trust in Allah (SWT). <Tirmidhi> It is better for you to leave your heirs wealthy rather than poor and asking others for their needs.

Non-Shariah compliant elements

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The Pakistani Market Challenges for Takaful (cont.)

Government regulations untested Human resources for the sector Shortage of trained human resources in insurance Negligible knowledge of Takaful present amongst the public Few training programs available for Takaful and insurance Insurance has generally never been the occupation of first choice for new graduates

11th August 2007

The Pakistani Market Challenges for Takaful (cont.)

Education and Awareness
Lack of knowledge about Takaful and insurance amongst the masses Ignorance of Takaful amongst the ulema Significant budget required just to ensure that knowledge permeates to all segments/levels of society

Marketing & Sales issues

Poor impression of insurance sales persons amongst the public Generally poor ethical standards amongst insurance sales persons General lack of faith on insurance companies meeting their obligation in a efficient and polite manner
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The Pakistani Market Challenges for Takaful (cont.)

Operational Issues
Limited avenues for revenue at Takaful co. as compared to insurance ones To be competitive Takaful co. will need to use effective IT systems heavy investments New Takaful co. will need to ensure that they do prudent underwriting; thus eating into the possibility of having a larger number of customers

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The Pakistani Market Opportunities for Takaful

Economic/Social conditions in Pakistan make Takaful a NECESSITY Lack of govt. social safety net Negligible provision of reliable health care by the govt. Quality education is beyond the reach of the average citizen and the institutions provided by the govt. lack the required standards
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The Pakistani Market Opportunities for Takaful (cont.)

Strong growth in the Islamic financial sector provides Takaful with a natural market
Islamic Banks and mutual funds will need Takaful to package with their other products Islamic Financial institutions presently have no Family coverage for their staff

Massive untapped market in Pakistan for risk mitigation tools

Given the necessity of these tools insurance has not even touched the surface Given the plain vanilla menu provided to customers there is a great opportunity for innovation
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The Pakistani Market Opportunities for Takaful (cont.)

Ethical and Shariah compliant model for risk mitigation and financial protection Large number of people who stay away from insurance due to religious beliefs Large number of our population can be considered as religious and so Takaful will be in line with their beliefs Educated citizens, although not religious would prefer to use an ethical model than one which is built on making profits by trying to avoid having to pay claims
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Takaful What should you do about it?

As educated professionals WE have a responsibility to our fellow citizens to guide them to what is good for them. This is especially important when the people are living at a level where income equals expenses
Convey the critical nature of financial protection to others Explain the benefits of getting financial protection Introduce the new concept which is not only ethical but also Shariah compliant

Just start from those around you.

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Conclusion
Takaful is not only here to stay; its going to GROW! Its ethical and Shariah compliant nature allows Takaful to overcome the inherent problems with Insurance The Pakistani market has challenges but also has a lot of opportunities There are a lot of opportunities for Takaful operators to make healthy profits in Pakistan Although Insurance coverage is not the norm in Pakistan we need to work to make Takaful something everybody uses
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Conclusion (cont.)

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Jazak-Allah khair
For further information contact: (021) 438-0357 to 61 info@pakqatar.com.pk www.pakqatar.com.pk
(launching soon!)

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