1 Introduction Terminologies Takaful 101 Takaful Process Key Features of a Takaful ModelNeed for Takaful InsuranceGeographical Spread of Takaful BusinessCurrent Market Conditions2015 ProjectionsThe TrendChallenges faced by TakafulLines & Territories
2 TerminologiesSharia : Islamic law based on Quran and the teachings of the Prophet (PBUH)Participants : PolicyholdersOperator : The company that invests the capital (aka shareholder)Haram : Prohibited elements in Islam according to ShariaTakaful : Insurance that avoids haram elements in accordance with the sharia law.General Takaful : Islamic equivalent of General InsuranceFamily Takaful : Islamic equivalent of Life InsuranceDonation : Premiums paid by participantsBenefits : Claims paid back to participantsWakala Fee : Fee paid by participants to operatorSurplus : underwriting profit (belongs to participants)
3 Takaful-101In 1985 Islamic Fiqh (science of Sharia) Academy declared conventional insurance as unIslamic due toInterestUncertainty (Gambling)Investments in alcohol, entertainment, pork etc. companiesTakaful - an Islamic alternative (avoiding the above)Similar to a conventional mutual insurance programBased on Sharia (Islamic) principlesModelsMudarabah (sharing of u/w profit with the operator)Wakalah (agency)Waqf (endownment fund)Sharia Compliant Investment strategiesRetakaful – Sharia compliant reinsurance of Takaful companiesIslamic Fiqh (science of Sharia) Academy, emanating from the Organization of Islamic Conference, meeting in its Second Session in Jeddah, KSA, from 10 to 16 Rabul Thani, 1406 H (Dec 1985) issued a Resolution which in summary stated the following:The commercial Insurance contract… is prohibited (Haram) according to the Sharia.The alternative contract which conforms to the principles of Islamic dealings is the contract of cooperative insurance, which is founded on the basis of charitable donation and Sharia compliant dealings.
4 Takaful Process (Wakala Model) InvestmentsInvestment of PremiumInvestmentReturnAIG TakafulPolicy-holder’sFundShare-holders’PremiumManagementFeeOperating ExpensesPolicyholdersClaimsNet InvestmentIncomeSurplusReinsuranceAcquisitionCost
5 Key Features of a Takaful Model Cooperative Risk-sharing for Protection(cooperative risk sharing alone is not sufficient)Clear segregation of Operator and Participants FundsQualified Sharia BoardSharia compliant Investment strategies and overall management
6 Need for Takaful Insurance Muslim countries only account for 5% of the global insurance market although they represent 25% of the world’s populationMost Muslim countries are on earthquake zonesImproved education among Muslims – awareness of Insurance needsEnhancement of Islamic finance and bankingGlobal economic growthInsurance penetration among Muslim countries as a % of GDP is relatively low: between 0.5% and 1.5%except in Malaysia at 6%, the US 9%, UK 14%, Japan 11%, S. Korea 12%
7 Takaful – also an Ethical product Islamic financial services can also focus on non-Muslim consumers by emphasizing their high quality services, the opportunity to gain monetary reward as well as introducing them to a new way of life.Takaful can also be the alternative solution in Tariff driven Markets, e.g. Malaysia.Transparency of investment strategy with respect to ethical investment alternative.
8 Geographical Spread of Takaful Business CountryTakaful% of TotalMalaysia$143m27%Other Asia Pacific$50m9%Europe, Asia$6m1%Arab Countries$340m63%Total$538m100%These are estimated figures – 2000
9 Current Market Conditions High Capitalization frenzy to enter Takaful & Re-Takaful Markets:Solidarity (2003): Paid up capital of USD 100MTakaful Re Ltd. (2005): ARIG – Paid up capital of USD 125MSalama Islamic Arab Insurance Co: Paid up capital of USD 272MOwns BEST Re – worlds largest Re-Takaful company with over 60% global market shareAIG would be the first Multinational Takaful operatorSalama is Worlds largest Takaful Operator Major Shareholder Sheikh Khalid Bin Zayed Al Nehyan.
10 2015 Projection Sector US$ (billion) % Global Conventional Insurance 1,Global Takaful MarketTotal Insurance Industry ,
12 Challenges faced by Takaful Customer unawarenessIslamic Financial Institutions need to distinguish their productsLack of variety among Islamic financial instrumentsCompetition with Conventional InstitutionsLimited ReTakaful Capacity
13 Lines & Territories Personal & Retail Lines Property & Casualty Financial products - IFIsMarine coverageEnergyCountries with high spending power (e.g. UAE, India etc.)Major industrial growthHigh concentration of risk