The report said the GCC region contributes more than 62 percent of the takaful gross premiums and expanded by 17 percent to $5.7 billion in 2010, mainly driven by Saudi Arabia.
It urged more consistency of regulatory frameworks in the takaful market and development of new business models as these are some of the factors that would affect the industry in the future.
According to the report, the biggest challenge being faced by the industry in the Middle East region is the “Arab Spring syndrome” which has resulted in the reluctance of corporates to invest for expansion and to hire. In addition, growth rates of takaful penetration are slowing due to a lack of customer education and inadequate product awareness programs. This has been further hindered by a lack of clear strategies from takaful providers, and lack of research and development in product innovation and marketability.
In the attempts to address the issues, the report suggests that practitioners as well as regulators need to work together to ensure that the industry specific standards ?nd their way in a real, practical sense.
It presents a model for positioning of new takaful solutions which is largely driven by core influences, which include governance competence, risk management function, Shariah compliance, product governance and process, strategic target market and sales and marketing capabilities.
Dr. Hatim El Tahir, Director of the Islamic Finance Knowledge Center of Deloitte Middle East, noted that “heightened focus on governance, fiduciary responsibility, risk management and accountability are direct consequences of the global financial crisis and will likely present takaful with challenging practice and regulatory issues during the next five years.”
Ten key challenges were identified that would significantly impact the future of the takaful industry. These are grouped into five industry disciplines which are:
Governance and regulatory compliance: the report finds that more consistency of regulatory frameworks is needed, and optimizing capital adequacy through consolidation will achieve growth and sound corporate structures.
Risk management and internal controls: Making risk-based business a priority, unified with takaful operators' strategic planning, and improving risk and Shariah disclosures and governance.
Operational and Business Excellence: There is a need for new business models to accommodate wider niche markets and improved technology capabilities to achieve cost efficiency and productivity.
Product governance and strategy: Improving product governance and product development processes, and placing emphasis on target markets, sales and distribution.
Capacity building: talent and leadership development: Switching emphasis to internal development to build specialized knowledge and refocusing on competency-based training and leadership programs.
In 2010, the Far East region recorded the highest growth rate of 32 percent on the back of $1.95 billion in contributions, while the GCC, led by the Kingdom of Saudi Arabia (KSA), maintained the largest share of contributions, growing a further 17 percent to $5.7 billion.
The GCC region accounted for almost 40 percent of the total takaful business with South East Asia coming a distant second with an 11.8 percent share in 2010, based on figures compiled through inputs given by the various takaful operators around the world. The sustainable growth of Islamic finance in many parts of the world and in particular MENA and SEA will stimulate additional growth in the takaful sector as finance and insurance services are intertwined.
The heightened focus on governance, fiduciary responsibility, risk management and accountability are direct consequences of the global financial crisis and will likely resent takaful with challenging practice and regulatory issues during the next five years.
Achieving growth in the takaful insurance sector and breaking through into the mainstream might be easier said than done. This is especially true because the takaful industry faces enormous challenges to achieve growth and build mass coverage globally. Yet, the growing industry has a number of opportunities to set the stage for both short- and long-term growth.
(Saudi Gazette / 19 June 2013)
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com