Takaful Industry’s Rise Highlights Rich Prospects Despite Market Challenges

With the global Islamic finance markets exuding vitality as they sail past the $2 trillion mark, the Takaful industry – a Shariah-compliant form of insurance – is emerging as a buoyant subsidiary sector. According to EY’s recent report, Global Takaful Insights 2014, the Takaful market is on course to achieve an annual growth rate of around 14% from 2013 to 2016, with an anticipated net worth of $20 billion by 2017.

Delineating the Growth Epicenter

Saudi Arabia dominates the Takaful landscape, contributing a staggering 77% of the gross Takaful contributions in the Gulf Co-operation Council (GCC) and almost 48% globally. Within the GCC, the United Arab Emirates follows suit with a 15% contribution, leaving the rest of the Gulf nations to account for the remaining 8%.

In the wake of the high-velocity markets in Saudi Arabia and the UAE, Qatar, and the recent entrant Oman, are accelerating their paces, setting new benchmarks in the Takaful sphere in the Middle East and West Asian markets. Beyond the Middle East, Turkey’s entrance into the Takaful industry signifies new opportunities, and established markets like Sudan in Africa are likely to see replication in other African regions.

EY’s Senior Director of Global Islamic Banking Center, Abid Shakeel, emphasizes the synergy between the Islamic banking sector and the Takaful industry. He states, “The thriving Islamic banking sector will play a pivotal role in fueling the Takaful industry’s progress.” He also noted that the potential in markets like the UAE, Malaysia, and Indonesia is colossal, especially in the family Takaful and medical insurance segments, given the mere 2% insurance penetration rates in key Muslim rapid-growth markets.

Navigating Challenges to Forge Ahead

Despite the prevailing zest, the Takaful industry is not without its challenges. A lack of uniform regulations, coupled with operational hurdles and fierce competition, has impeded the pace of growth in the GCC. Profit margins are being squeezed as companies struggle to differentiate themselves, and the dearth of qualified talent is concerning.

Shakeel indicates that in the face of intense competition, large Takaful operators need to recalibrate their strategies in line with emerging customer trends. They must refine product offerings and streamline operations for cost efficiency. Smaller players, on the other hand, need to rapidly bolster their digital capabilities to curtail operational costs.

For the Takaful industry to reach its zenith, there is an imperative need to revisit strategies, operations, and regulatory frameworks. Shakeel concludes, “The quest for sustainability and growth necessitates a concerted effort from regulators and industry players alike to foster a standardized regulatory and Shariah framework.” This, along with a focus on customer-oriented products and operational efficiency, could steer the Takaful industry to realize its global market potential and cement its position as an ethically-based, robust alternative to conventional insurance.