Islamic Insurance Growth Faces Roadblocks: Report

DUBAI,  While the Gulf Arab states increased market penetration with Islamic insurances, also called Takaful, Malaysia continues to lead the global Takaful industry while Takaful operators face the problem of over-regulation and resource scarcity, said the 2nd Takaful report by consultancy Deloitte released here on Sunday.

According to the study, the global Takaful industry from 2007 to 2012 at a rate of 18 per cent per year and hit in the first half of 2013 a volume of 18.3 billion dollars in relation to gross contributions. Dr. Hatim El-Tahir, the director for Islamic finance knowledge at Deloitte said while he expected the market to continue to grow at this pace in the coming years, the Takaful operators were increasingly facing headwinds. “The markets for Takaful, globally, are very fragmented, which hampers growth somewhat,” said El-Tahir.

Malaysia which has an insurance penetration of and with a total population of approximately 30 million people of which 70 percent are Muslims faces the least headwinds, not only because of a sophisticated Islamic finance regulation, but also because Takaful in the South-East Asian country is also accepted by non-Muslim people, especially the big Chinese population, said El-Tahir.

“Malaysia accounts for 71 percent of the entire Takaful market in South-East Asia,” the expert said. Nevertheless, in neighboring Indonesia which is with a total population of 254 million people the biggest Muslim nation, Takaful lacks of political support, said Dr. Sohail Jaffar, deputy CEO at Luxembourg-based Takaful operator FWU Group.

Malaysia which has 12 standalone Takaful operators, is followed by the six Arab Gulf countries (GCC) as they have implement law for compulsory health and motor insurance, but demand for Islamic life insurance, also called family Takaful, is less than two percent, according to Deloitte. In the Gulf region, the United Arab Emirates (UAE) and Saudi Arabia lead with Takaful as both oil states represent nearly 80 percent of gross written premiums.

However, Takaful operators in the GCC are legally not allowed to develop a product in one country and market it in another Gulf country but they need approval from all six national regulators in Saudi Arabia, Kuwait, Bahrain, Qatar, UAE and Oman in order to do so. The lack of resources such as qualified staff, missing research capabilities and low demand for life insurance products, in the Middle East in particular, have slowed down the growth of Takaful.

Oversupply is another obstacle. In Kuwait alone, there are 30 Takaful operators which means many can’t generate sufficient profits simply because the market is too small. According to Ernst and Young, the global Takaful industry is poised to reach a volume of 20 billion dollars by 2017, still a small segment in the 2 trillion dollars Islamic finance segment worldwide.

Originally published on www.news.xinhuanet.com