The World of Takaful

Current Achievements
&
Future Outlook
By Dr. S.J.Malaikah
Chairman – BEST Re

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 1

 Introduction
“Takaful” is the brand name for the
Islamic alternative to conventional
insurance.

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 2

 Basic Principles
 Very similar in nature to co-operative
and mutual insurance,
– it endorses their basic principles of
solidarity and profit-sharing
– whilst retaining a capitalistic base
(shareholders) and above all
– Ensuring compliance with the Islamic
Shariah rules and principles

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 3

 Shariah Compliance
 Shariah compliance is an essential
element in Takaful insurance .
 It is ensured through a Shariah
Supervisory/ Advisory Board at the level
of each Takaful company.
 The role of the Shariah Board is vital in
meeting the specific demand of a public
who would not insure otherwise.

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 4

 Takaful Pioneers
 Takaful started some 27 years ago in
the Middle East with the launching of
two companies:
– The Islamic Arab Insurance Co. (IAIC) in
the UAE and
– The Islamic Insurance Co. of Sudan
 But it took some time for the
movement to take shape.
Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 5
 Takaful Pioneers

 Later in 1984, Malaysia played a

pioneering role in setting the first Legal
framework specific to Takaful (Takaful
Act).
 This was instrumental in the successful
launching of the Takaful movement in
Malaysia and in other countries of South
East Asia.
Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 6
 Other Islamic/ Takaful
Legislations
 Other markets such as the Sudan and
Iran have Islamic regulatory
environments and became naturally
Takaful markets.
 In the Gulf countries specific Takaful
legislations are coming through in
Bahrain and in Saudi Arabia

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 7

 Takaful Today
 From a handful of operators two
decades ago the Takaful movement has
blossomed into a fast growing
phenomenon in many Muslim countries
with very promising prospects in other
countries with a large Muslim
community.

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 8

 Takaful drivers
 This movement is driven by
– a strong demand from a public who would
not insure otherwise (because of religious
beliefs); and
– The successful development of Islamic
banking institutions providing capital and
Islamic financial instruments for asset
management and investment.

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 9

 Takaful Drivers
 Islamic banks and financial institutions play a
strategic and important role in the distribution
of Takaful products (especially Life Takaful
Products).
 Just as Bancassurance played an important
role in the distribution of personal lines
insurance products Bancatakaful is an
important driver for Takaful.

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 10

 Takaful Operators
 The number of Takaful operators
worldwide is now estimated at:
 60 Takaful companies
 3 Retakaful companies
 This number may reach 90 + if so-
called Takaful windows are to be
included.

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 11

 Takaful Premium
 Takaful is one of the fastest growing
segments in insurance (at around 20%
pa. on average)
 World Takaful contributions are
conservatively estimated at around US$
3billions, of which:
– 60% General Takaful
– 40% Family Takaful

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 12

 Takaful Geographical Spread
 South& East Asia : 56%
 Middle East : 36%
 Africa: 7%
 Europe, USA & Others: 1%

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 13

 Main Markets
 Malaysia
 Indonesia
 Iran
 GCC countries
 Other Arab countries
 Other Asia Pacific

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 14

 General Vs Family Takaful
 In the Far east region Family Takaful was and
still is the driver of the segment in terms of
contributions and growth;
 Whereas General Takaful leads the way in the
Middle east markets.
 This trend is slowly changing with the advent
of new highly capitalised Takaful players in
the GCC determined to develop Family
Takaful products.

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 15

 Personal Lines Vs. Corporate
Accounts
 Current Takaful portfolios are in most
cases geared towards personal lines
with the largest percentage derived
from Motor business.
 Diversification towards Corporate
accounts is a big challenge ahead

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 16

 The Challenges ahead
 Despite a remarkable breakthrough and
a dynamic and sustained growth, there
are challenges facing the Takaful
industry.

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 17

 The business model dilemma
 The existence of two business models:
 Mudharabah (Profit & Loss sharing)
 Wakala (agency contract with a performance fee element to
replace surplus sharing)
 And the introduction more recently of the Waqf
model

 Could create an uneven / unfair business

environment to operate
 Need to reach a consensus internationally on a
common and standard Takaful business model

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 18

 Takaful Best Practices
 Regional Takaful institutions and
organisations need to come together
internationally in order to promote and
standardise best practices within the industry:
– Islamic Financial Services Board (IFSB)
– ASEAN Takaful Group (ATG)
– International Takaful Association (ITA)
– Accounting and Auditing Organization of Islamic
Financial institutions (AAOIFI)

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 19

 Retakaful Solutions
 Takaful operators are heavily reliant on
reinsurance.
 There is a high need for ReTakaful
solutions

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 20

 Retakaful Solutions
 There are currently 3 Retakaful
operators in the market providing
services to primary Takafuls:
– Asean Retakaful International (L) Ltd.
(Malaysia)
– BEST Re (Tunisia)
– Takaful Re (U.A.E.)

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 21

 Retakaful Solutions
 Need to create a mechanism for an
active role of Retakaful in the Islamic
financial system;
 Need to promote a strong Retakaful
operator capable of playing a leading
role in providing first class security,
capacity and value-added services.

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 22

 Retakaful Solutions
 The idea of an International Retakaful
Syndicate/ Consortium was launched
recently in Langkawi (Malaysia) at the
2nd International Symposium on
Takaful.
 Need to promote a Retakaful hub
capable of hosting the maximum
number of Retakaful offers.
Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 23
 Future Outlook
 Despite the remarkable growth rate
recorded by the Takaful industry,
penetration is still far below the
enormous market potential offered by
the Muslim community worldwide (23%
of the total world population).

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 24

 Growth Outlook
 World Muslim population is estimated at
1.5 billions, of which around 97% are
based in Asia and Africa.
 A two-digit growth in the range of 15%
to 20% can be reasonably sustained for
at least the next 10 years in the existing
markets (Far and Middle East).

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 25

 New Takaful Frontiers
 Markets like Europe, North and Latin
America, Central Asia, Australia where
large Muslim communities live are huge
untapped reservoirs;
 The recent opening towards “Islamic
windows” in the banking sector in
Europe is likely to be followed by
“Takaful windows” initiatives.
Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 26
 Takaful at Lloyd’s
 The recent opening at Lloyd’s of a
Takaful dedicated syndicate
(Creechurch) is a clear indication that
the segment is promising.

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 27

 Takaful, Cooperatives & Mutuals
 International institutions such as the UK-
based International Co-operative and Mutual
Insurance Federation (ICMIF) recognised the
Takaful movement as part of the global
cooperative & mutualistic paradigm.
 ICMIF is firmly committed to supporting the
development of Takaful schemes in Muslim
and Non-Muslim countries.

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 28

 Takaful, Cooperatives & Mutuals

 “Folksam”, an ICMIF member, is actively

building affinity with the Muslim
community in Sweden by offering
Takaful schemes and products.
 In France, Some mutuals are showing
interest in Takaful products.

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 29

 Takaful Products to Non-Muslims

 Takaful Products are not exclusive to

Muslims.
 Competitively priced and sold through
the right channel it could attract any
consumer irrespective of their origin or
faith.

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 30

 Conclusions
 Despite the challenges facing this “new”
industry, exciting times are ahead once
the latent potential is unleashed.
 The success of Takaful largely depends
on that of Islamic Financial institutions
on a global basis.

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 31

 Conclusions
 There is a need for
– More strategic alliances and synergy
between Islamic Financial institutions;
– More cooperation between Islamic
operators at an international level
– A better legal and regulatory environment
– Better competencies in Islamic Finance.

Asian Conference on Takaful (Insurance) InterContinentaI Singapore, 29-30 March, 2006 32