Takaful Regulations – A Global Perspective International Program on Takaful 27th July to 1st August 2015 College of Insurance Mumbai Dr. Abdul Samad Mohammed CBAK, Al Kharj, KSA

Presentation - Outline Importance of Takaful Regulations Need for Takaful Regulations Possible Remedies Global Scenario – GCC and other important players

Takaful As An Entity Islamic financial institutions and products, like their Conventional counterparts, are essentially legal constructions Just as any evolving and growing concept, the young entity like Takaful also needs guidance and opportunity in order to grow into a well- balanced mature industry

Need for Takaful Regulations Legislation Regulation Compliance Implementation Policy Holders Interest Policy Holders Protection Brand Value

Takaful Regulations and Business Risk Evolving Takaful regulations is a big Business risk As per an international survey in 2013 & 2014 ‘evolving Takaful regulations’ have been rated as 2nd most risky in the overall risk ranking . Regulatory gaps often brings dodgy elements in the business - challenges and cost increase

Developing Takaful Regulations The Consequences Continuing regulatory reforms have unreasonably increased compliance costs and man efforts. Significant regulatory divergences across global markets continue to adversely impact the industry’s growth, profitability and acceptance. Remedy Industry facilitators including regulators and standard setters can nurture growth by working on standardization of regulatory parameters Standard Takaful models to remove barriers for healthy growth Standard-setting bodies like AAOIFI and IFSB can develop a convergence roadmap for regulators, operators shariah scholars and other stake holders

Takaful Regulatory Concerns Eradicate Miss-selling Deciding whether to have a full fledged Takaful Operator To offer Takaful through ‘Window’s’ of existing conventional operators Timing of payment of contributions Takaful Pool – participants

Takaful Regulatory Concerns - II Rating of Risk Policy Services Claims Settlement Fund Investment Norms Treating the Surplus and Deficit of Participants funds

Shariah Advisory Board Involvement from the inception stage Job of the Shariah Scholars - not just prohibiting product development / working mechanism but to provide an alternative route Orientation needs to be provided to the Shariah scholars about practical market and industry implications

Regulatory Scenario – UAE On par with International regulations: Solvency norms Investment guidelines Financial reporting Models used – Wakala, Mudaraba and hybrid of both models Regulatory provisions reflect the Shariah standards recommended by the AAOIFI

Regulatory Scenario – Oman Capital Market Authority regulates the financial markets in accordance with laws of Insurance Companies (Oman insurance law) The process of updating laws and regulations applicable has started and is being finalized Recent measures include the following: Operators preferred to “Windows” by conventional operators Minimum Capital Requirements have been doubled Tentative approval for 3 Operators already given Shariah complaint index launched (Investing options broadened)

Regulatory Scenario – KSA SAMA provides all regulations to the financial markets in KSA. KSA is the biggest market in the GCC countries, out of a total premium income of nearly $10 billion about 80% is based in Saudi Arabia Cooperative Model is dominant (Works as a Yardstick in offering insurance products. (NCCI - Major Player) Strictly speaking Cooperative Model is different from ‘Pure Takaful’ Surplus Split: 90% - Shareholders 10% - Policy Holders Insurance Laws and regulations must comply with the cooperative model, as defined in the Articles of Association of the former state monopoly Tawuniya

Regulatory Scenario – Kuwait Ministry of Commerce and Industry regulates the insurance market in accordance with law no. 24 of 1961 (Kuwait insurance law) There was no exclusive expression of Takaful Regulations nor there was any mention of it in the conventional Insurance laws. But as of now new regulations dealing with insurance and Takaful are ready to be tabled in the Parliament for discussion and ratification soon. The new laws and regulations are expected to deal with the following: Increased capital requirement for insurers (From US$ 525,000 to US$ 5 million) Enhanced liquid asset requirements for operators Qard Hassan Shariah Supervisory issues

Takaful Regulations – Sudan The term Takaful is used in Sudan to refer to life insurance as distinct from general insurance The Insurance and Takaful Act, 2003 - To define the scope, subject and parties of insurance and Takaful contracts In accordance with Article 7 of the Supervision and Control Act, 1992 of the government to free the entire economy from non‐Islamic transactions Ministry of Finance and National Economy issued the Resolution No. 219 in 1992 to form the High Shariah’ Supervisory Board (HSSB) of the Insurance Supervisory Authority (ISA) with the following primary objectives: To issue fatwa on matters raised by (ISA). To harmonize insurance operations in accordance with Takaful laws. To get the Shariah Supervisory Boards of the different insurance companies operating in the market on to a common platform

Conclusion Regulators should encourage the Takaful operators to provide sufficient support to policy holders Takaful operators must establish if required complex and expensive safe guards to mitigate weakness in evolving regulatory regimes Regulations should be tailored made to Takaful model requirements with coherent provisions for the development of Takaful industry as a whole

Jazakallah Khair and Thanks a Lot !