Takaful market poised for growth but lacks Shariah compliant investments, talent

SINGAPORE: The Islamic insurance or takaful market is expected to see strong growth this year.

Still, challenges remain including low market penetration and a lack of Shariah-compliant investment opportunities for takaful players.

Industry executives said they want to see more Islamic bond, or sukuk, issuances in order to help them balance their portfolios away from equities and reduce risk.

The multi-billion dollar purchase of AIA last week was a massive vote of confidence in Asia’s insurance sector and Prudential is not alone in being bullish about the outlook.

At a conference on Islamic insurance or takaful, industry executives said they were optimistic about growth prospects.

Total takaful contributions only account for just one percent of the global insurance market.

But this is expected to increase significantly, thanks to growing interest among Muslims and non-Muslims alike in shariah-compliant investment and insurance products.

Daud Vicary Abdullah, global leader, Global Islamic Finance Group, Deloitte, said: “We’ll see more growth in the Gulf. I think it’s occurring here in Singapore, Malaysia and Indoneisa. I think the growth is positive. But to put a figure on it on a global basis, the numbers of 10 to 15 per cent in terms of growth of market are not unrealistic.”

According to an estimate by Ernst & Young, total takaful contributions can reach US$7.7 billion by 2012.

That’s compared with just US$1.4 billion in 2004.

Despite the growth prospects, there appears to be a lack of shariah-compliant bonds or sukuks.

And some central bankers say they are working to address the shortage.

Azleena Idris, Deputy Director, Islamic Banking & Takaful Dept, Bank Negara Malaysia, said: “Malaysia regularly issues shariah-compliant money market instruments so that it will facilitate the liquidity aspect of things. Now when it comes to the takaful space, the longer term instruments are something we’re aggressively promoting under the MIFC banner.”

Industry players also said they’re severely lacking in talent and the industry will likely see more consolidation as the smaller takaful players strive to become more competitive.

source : channel news asia

Gauging the Global Takaful Market

takaful_microchipBy 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.”

Source: Celent