By Bill Kenealy
What happens when you apply modern technology to an ancient practice? A new report from Boston-based Celent concludes that insurers and the vendors that supply them need to answer some fundamental questions before they can reap the rewards of the fast-growing market for takaful, a form of mutual insurance popular in the Muslim world.
According to the report, takaful, once a niche product sold largely by small local operators, is rapidly being embraced by multi-national financial services firms with sophisticated product differentiation and distribution capabilities.
The report, Policy Administration Systems for Takaful: A Global Solution Spectrum, was authored by Celent analysts Catherine Magg-Stacey and Ashley Evans, and examines the issues that are shaping the market worldwide. A lack of economies of scale and comparatively lower use of technology, means takaful companies are operating with inflated expense rations, according to the authors.
“Takaful companies, particularly in the Middle East, have shown higher expense ratios than their conventional counterparts,” the report states. “Over time, volumes will rise, and higher customer persistence is expected to offset the expense ratios to some extent. The
final key to managing the expense ratios lies in the use of technology.”
The report provides detailed profiles of the core systems available to takaful companies, especially policy administration systems.
“Policy administration systems are the beating technological heart of any insurance company and this is equally true for takaful companies,” it states. “Given the specificities of a takaful company, a critical element to a successful policy administration system is a flexible architecture. Fortunately, for those entering into this market, many of the modern policy administration systems offer this with user-friendly interfaces and tools allowing configuration of products, workflow, and reports.”
Yet, the report finds many barriers to widespread technological adoption in the takaful market, including a lack of standardization.
“In the short term, it is unlikely that national or international takaful standards will emerge,” the authors state. “Even though many industry players acknowledge the benefits to be gained by harmonization, the reconciliation of the varied approaches espoused by competing associations and standards boards will be a formidable challenge.”
Challenges notwithstanding, the rapid growth of the takaful marketplace will entice insurers and vendors alike to target it. Celent predicts the global takaful market will grow to $7.39 billion by 2015, with the greatest growth in the Middle East and Southeast Asia. “For the moment, the growing takaful market presents a niche opportunity, and the small number of vendors with takaful experience reflects this. However, the sustained double-digit increase in premium in this market will see a commensurate increase in takaful operators/windows in the next few years.”