While the prospects of takaful have been much discussed, its share of global gross premiums remains paltry, with discussions focussing more on potential than on realisation. Speakers at the 8th Asia Takaful Conference in Singapore gave their views.
The cold, hard reality is that of total gross premiums worldwide, takaful still contributes less than 1%, said Mr Shahril Azuar Jimin, Chairman of the Global Takaful Group (GTG) at the 8th Asia Takaful Conference in Singapore. The discussion of the last few years, he said, “is always about the potential and little about the realisation”.
The prospects have been somewhat dimmed by the Arab Spring, with global companies shying away from once-promising markets. Mr Shahril, who is also the Senior Executive Vice President and Chief Commercial Officer of Malaysia-based Maybank Ageas Holdings, noted that markets such as Syria and Egypt were once considered as high potential, but global players are now reconsidering their strategies to enter these territories.
Fewer takaful attempts
Agreeing, Mr Nassib Al Barbir, Deputy Director of Takaful Re, said there have been fewer takaful attempts in emerging markets due to their unstable political and economic situations. Political, compliance, sanctions and other issues are slowing down these countries’ economies, and are directly affecting the insurance industry in general and the takaful growth in particular, and these have not helped the growth of retakaful operators in these markets, he said.
Nonetheless, Takaful Re has seen many queries from existing insurers in Africa on shifting to takaful operations. Some of them have started with takaful windows, with an aim to shift their existing portfolio to become full-fledged operations in the coming few years, he added.
In contrast, Malaysia has seen a flurry of mergers and acquisitions during the last three years and a second wave of consolidation is about to get underway. Khazanah Nasional and Canada’s Sun Life Financial have acquired CIMB Aviva Assurance and CIMB Aviva Takaful, while ING has sold its insurance operations in Malaysia – including ING Public Takaful – to AIA.
So in the short term, there are no surprises where the most takaful growth will come from. “Traditional markets”, including the UAE, Qatar, Bahrain, Saudi Arabia and Malaysia, will drive most takaful growth in the next two to three years. “But in three to five years, there could be more developments beyond the “usual suspects”, said Mr Shahril.
Growth drivers
So how can takaful realise its potential? Speakers at the conference raised some suggestions:
1. Target the non-Muslims
On its “ethical” platform, takaful products stand a chance to be well-accepted not just by Muslims, and should therefore be marketed to non-Muslim communities, said Mr Shahril.
In fact, Mr Erwin Noekman, Chief Operation of Jasindo Takaful pointed out that even in Indonesia, the biggest growth area for takaful is the country’s largely non-Muslim eastern region.
2. Differentiate your products
“We can differentiate by serving the same target market with different products, or serve different target markets with the same product,” said Mr Hassan Scott Odierno, Partner with Actuarial Partners Consulting. He listed three “hot products” in Malaysia which could offer a chance for differentiation: guarantee products, annuities and what he called “scary products” – such as long-term care – which offer the “greatest potential for differentiation”.
However, Mr Nizam Yahya, Vice President and Client Manager of Swiss Re Retakaful, said that although family takaful can help meet these needs, annuities are in short supply because of considerable under-reserving for the longevity phenomenon and lack of diversification among many takaful companies, among other reasons.
3. Get the distribution right
In countries with a Muslim minority or Muslims dispersed throughout the country, an agency force is not likely to be practical, said Mr Odierno. Instead, banks are a more practical means of reaching the masses, especially those in rural areas.
4. Focus on Shariah
Takaful should move from being just Shariah-compliant to being Shariah-centred, said Mr Ravindra Mohan Vijalapuram, Vice President, Consulting & Business Development with AETINS.
Among other things, this means that takaful should stick to its principles of justice and benevolence, said Professor Datuk Dr Syed Othman Alhabshi, Chief Academic Officer of the International Centre for Education in Islamic Finance (INCEIF).
And these should not just be the aims, but also the means by which takaful is practiced. For example, it is not just the takaful operator which should practice justice – participants should also do the same when making claims, he added.
5. Capital markets need to be conducive
With the lack of long-term sukuk still hampering industry growth, the takaful industry needs to maximise other investment vehicles available. The challenge is very real in places like Indonesia, where the development of capital markets is lagging behind the growth of takaful. “This is key for family takaful to take off in a big way,” said Ms Anita Menon, Chief Risk Officer with Prudential BSN Takaful. “If investments don’t match returns, that’s not going to augur well for the industry.”
6. Raise technical capabilities
The progress of takaful has been hampered by a lack of specialised skills, and even in a leading market Malaysia where there have been conscientious efforts at raising capabilities, led by organisations such as the central bank and INCEIF, “there is still a long way to go”, said Ms Menon.
The issue is the same in Indonesia, where “knowledge and capabilities need to increase significantly, especially in actuarial skills”, she added, pointing to the limited pool of actuaries in the market.
7. Having the right rules and regulations help
Malaysia’s new Islamic Financial Services Act (IFSA), said to be more defined and expressive compared to the present Takaful Act, looks to be implemented by the end of this year, and is expected to bring about greater sector consolidation and greater Shariah compliance.
Operators should also aim to adopt Islamic Financial Services Board (IFSB) standards for their benefit. “The IFSB is not developing standards for the sake of it, it is developing these for the industry,” said Ms Kartina Md Ariffin, Member of the Secretariat, Technical and Research. “These standards have to be Shariah-compliant and on par with conventional rules at the same time.”
Enhancing the value proposition
The takaful sector faces other issues, but one thing is for sure: “As the dynamics of the industry are gradually changing and competition intensifies, takaful players must enhance their value propositions in order to remain competitive,” said Mr Shahril in his concluding remarks.
The 8th Asia Takaful Conference was organised by Asia Insurance Review under the theme “Getting Technical in Takaful” and sponsored by AETINS and Manulife Financial.
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Takaful takes
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“The rating of individual entities within a market can often be very different from what the general market looks like, and this applies to takaful operators, too.”
– Mr Jeff Yeung, Associate Director,
A.M. Best Asia Pacific
“To get your takaful business out there faster, develop a simple product for your agents to sell.”
– Ms Nelly Husnayati,
Vice President Director and Head of Employee Benefits,
PT Asuransi Jiwa Manulife Indonesia
“Takaful operators need credible business plans to get capacity…retakaful will not convert poor underwriting management or investment performance into good ones.”
– Mr Musa Adlan, Associate Director,
Aon Benfield Malaysia
“Mimicking conventional insurance is fine. However, as takaful matures, it will need technical differentiation.”
– Mr Majid Mohamad, Managing Adviser,
MBM Advisers and former CEO, Labuan Re
“From a takaful perspective, there is too much hype about Indonesia being big business. The reality is that you don’t go into the insurance business when a large proportion of the country has problems putting food on the table.”
– Dr Mohamed Rafick Khan, Deputy CEO,
Munich Re Retakaful
“The growth potential of the global takaful market will remain strong over the longer term, although it is slowing down currently.”
– Mr Philip Chung, Associate Director,
Insurance Ratings Asia, Standard & Poor’s
“The takaful market in Indonesia is in the wrong place, with the wrong distribution and the wrong products.”
– Mr Bert Paterson, Country Manager,
PT Sun Life Financial Indonesia
“One of the main purposes of capital is for the takaful operator to provide Qard hasan when needed. So if you lower the need for Qard, you lower the amount of capital as well.”
– Mr Wan Saifulrizal, Director, Risk Consulting & Software, Towers Watson Malaysia
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