Dubai: The takaful industry in the Gulf Cooperation Council (GCC) countries will maintain its growth path in the next five years, but competition, operational issues and lack of qualified talent continue to pose challenges, experts told Gulf News on Monday.
Takaful, an Islamic alternative to conventional insurance, has been growing at a double-digit rate and global premiums are forecast to expand from $4 billion (Dh14.7 billion) in 2007 to $20 billion in 2017. As of 2010, takaful premiums accounted for nearly half (43 per cent) of the GCC region’s composite premiums, compared to 31 per cent nearly a decade ago, or in 2005.
Industry experts who attended the 9th Annual World Takaful Conference (WTC 2014) in Dubai on Monday said the profitability of takaful companies has been threatened not just by competition but by the lack of a uniform regulation that will allow them to operate across different markets. The industry also needs to invest in qualified professionals that will help drive the takaful business forward.
Takaful operators are likely to continue to struggle in the next few years, although some will look at alternative customer segments and explore merger options. There is, however, potential for growth, especially in the area of family takaful and medical insurance in major markets like the UAE and Oman.
Speaking on the sidelines of the conference, Gautam Datta, chief executive officer of Al Madina Takaful, said the uptake of takaful products is still low compared to conventional insurance, as operators struggle to compete for bigger market share.
“They’re trying to balance the return on equity with the competition, with the volume [among other issues],” Datta told Gulf News. “What is required is focus and broad vision. The biggest challenge is the operational aspect of making it work. And that is not just a challenge for takaful but for any new entrant in the market.”
However, Datta said, the industry will continue to record double-digit growth in the short term. “The GCC takaful premiums as of 2012 were roughly about $1.7 billion if I take Saudi Arabia out,” he said. “The CAGR has been in the region of about 10 to 12 per cent and I think that would be maintained, if not increased, in the next few years because of the growth in medical in the UAE and Oman.”
Christian Gregorowicz, chief executive officer of Nextcare, said that with a price-driven market like the UAE, takaful companies need to rethink their strategies, come up with new products and strengthen their customer service to stand out, and if not, sustain their business.
“The industry is on a challenging path because it’s been trying to establish itself as an alternative to conventional [insurance],” Gregorowicz told Gulf News. “It’s facing tough competition on growing its market share and on making its profitability comparable to conventional industry.
“There is price competition, especially in the UAE. At the end of the day, everything is about price.”
Globally, the takaful sector is forecast to grow by 16 per cent annually in the coming years. David McLean, chief executive of WTC, said the projection indicates a ‘slight deceleration’ when compared to the average 22 per cent growth rate that the industry achieved between 2007 and 2011.
“Though the industry has achieved significant market share in its key markets, including the Kingdom of Saudi Arabia, Malaysia, Bahrain and the UAE, the acquisition of market share has not necessarily translated into sustainable profitability levels in many instances,” he said. “Financial performance, return on equity and the quality of growth remain key challenges for takaful operators in many markets.”