The global takaful industry is expected to grow by 20% and reach US$10-15 billion within the next decade, led mainly by the GCC countries and Malaysia. MiddleEast Insurance Review takes a tour of recent developments across the world.
Despite the absence of truly reliable and up-to-date figures, industry experts agree that the global takaful industry is booming. Depending on whom one speaks to, gross contributions in 2006 ranged between US$2 billion (Ernst & Young) and $5.7 billion (Takaful Re). According to Ernst & Young’s recently-launched World Takaful Report 2008, accepted contributions are expected to rise to more than $4.3 billion in 2010 and that a 20% growth rate of the industry would be maintained.
The drivers of takaful demand include high economic growth and increase in per capita GDP, a youthful demography, increasing awareness, a greater desire for Shariah-compliant offerings and increasing asset-based, Shariah-compliant financing.
Despite significant challenges, the outlook for the takaful industry has enthused the Islamic finance world, according to Mr Sameer Abdi, Head of Ernst & Young’s Islamic Finance Services Group. “Assets held and financed by the Islamic financial services industry are increasingly motivated to use takaful to underwrite risk. Existing takaful capacity is slowly replacing conventional insurance in the industry. The challenge for takaful operators lies not only in tapping extrinsic demand but also in developing their capacity and expertise to provide a competitive alternative to conventional insurance,” he said.
While current growth rates indicate a future takaful industry of $10-15 billion within the next 10 years, there are critical factors that must be addressed. Key challenges facing takaful, as outlined by the report, include a fragmented and undercapitalised landscape, limited retakaful capacity, problematic asset management and lack of local solution offerings and local distribution channels.
In addition, the uptake of takaful is still low in Muslim communities. According to Dr Saleh J Malaikah, CEO of SALAMA, it accounts for just 1.1% of the total global insurance premium, whereas the Muslim population makes up 22% of the world’s population.
Dr Malaikah has also estimated the number of takaful operators at between 150 and 200. In 2006, they numbered 133, up from 105 the previous year. The market remains concentrated in the GCC and Far East.
According to Ernst & Young’s inaugural World Takaful Report 2008, the GCC is the heart of the global takaful market, with accepted contributions in excess of $1 billion as compared to global contributions of $2 billion in 2006. Of the world total of 133 takaful operators, 59 are within the GCC.
Among the GCC states, Saudi Arabia, the largest economy in terms of GDP with more than a quarter of total Arab GDP, is poised to lead the way. With the implementation of the Cooperative Insurance Companies Law 2003, it has become mandatory for all Saudi insurers to be Shariah-compliant. According to Dr Malaikah, in 2007 alone, 21 operators joined the market and at the end of the year, the insurance business stood at $2.2 billion. This is predicted to more than double in three years. Joining in soon will be takaful giant SALAMA, which is in the process of establishing a $300-million retakaful outfit.
The Kingdom also benefits from its relatively large and wealthy population. More than half of its 25 million population are in the upper middle class or higher, and two thirds are under 30.
The insurance industry received an additional boost recently with the introduction of compulsory health insurance for workers and third-party liability motor insurance. Under the new laws, both classes are expected grow in importance and keep pace with the boom in the property sector.
Kuwait now has 11 fully licensed takaful operators. It has also been the launchpad of Al Fajer Retakaful, which has a paid-up capital of $178.5 million and is backed by regional shareholders.
In the UAE, Mithaq Lil Takaful, the country’s fourth takaful operator has just completed a successful IPO and is expected to commence operations soon. Takaful Emirates and Noor Takaful, the takaful subsidiary of Noor Islamic Bank are said to be eyeing the market as well.
In Bahrain, t’azur, a new regional takaful company backed by institutional investors from four GCC countries, was formed late last year with an authorised capital of $500 million. The country is also the only one with a dedicated legal framework for takaful.
The number of takaful operators in Qatar has increased, within the last year, to five, following Qatar General Insurance & Reinsurance Co’s launch of its takaful subsidiary.
Syria’s three takaful companies intend to launch operations this year, while Oman’s first takaful company operates under the name of Al Madina Gulf Insurance Co.
According to a recent Moody’s report, the potential of the Islamic banking and finance market in Africa is huge. The actual depth of Shariah-compliant financial intermediation was only $18 billion at the end of 2007, equal to a market share of less than 8% of its potential size. More than half of the industry’s assets are located in Sudan, with Egypt ranking second, but with a much lower share of around one-fifth. Mr Anouar Hassoune, analyst and author of the report, said: “Provided that the continent continues to grow at its current pace, which is the fastest in decades, incremental wealth creation will make it easier for the Islamic financial services sector, including Islamic commercial banking but also Shariah-compliant insurance, investment and microfinance, to develop.”
Africa is the birthplace of takaful with Sudan introducing the world’s first general takaful product in 1979. Right now, it is the only country in North Africa to make it compulsory for all insurance businesses to be Shariah compliant. However, despite the long history of takaful in Sudan, the market remains relatively nascent. Insurance premiums reached a total of $171.6 million in 2005, and insurance penetration is only 0.6%.
In Egypt, where Islamic banking and finance companies still lag far behind mainstream commercial institutions, the acceptance of Shariah-based financial solutions remains exceptionally low by standards of the Muslim world. The Egyptian Saudi Insurance House, a provider of general takaful established in 2002, was the first to offer takaful in the country. Five other takaful companies have been licensed, the latest being a joint venture between Japan’s Tokio Marine & Nichido Fire Insurance and Egypt Kuwait Holding Co, which will provide both family and general takaful this year.
Elsewhere in North Africa, takaful investment has been driven by the Salama Group in Tunisia (Best Re), Algeria (Salama Algeria) and Senegal (Salama Senegal).
Dr Malaikah has noted signs of interest in the Morocco market, which may lead to the launch of takaful products in the not too distant future.
Takaful products were introduced to South Africa last year by Al-Noor Risk Solutions, which is currently riding on the licence of an existing insurer (Lions) and operates on the waqf and wakala models. It expects to obtain a full takaful licence within the next five years.
In the west, Takaful Insurance Co opened in Gambia at the end of 2007. Its Managing Director, Mr Momodou Musa Joof, became acquainted with Islamic insurance in Malaysia and decided to introduce it to Gambia upon his return.
