Dubai: The recent 11th Annual World Takaful Conference in Dubai was an eye opener with regards to the growing number of Takaful operators, and the intense interest in building the Takaful industry and ensuring greater options and benefits for customers.
The Takaful sector is at a promising stage in its development. Although its growth has been fast, there are several challenges and opportunities that the industry as a whole must address, or take advantage of. A key challenge for Takaful companies has been differentiating their product offerings from conventional insurers - which has eroded the value of Takaful operators in an already fiercely competitive market.
In essence, Takaful is based on the concept of mutual indemnification - an agreement that helps all parties involved in cases of loss of health, life or property. Based on ‘risk sharing’, this concept is an alternative method to the more popular ‘risk transfer’ principle used in the conventional insurance space. Takaful is based on the mutual help and cooperation of all the owners of the participant fund, which is basically a risk pool that is made up of participant contributions. In addition, it does not engage in interest-based activities and invests the contributions made by the participants and shareholders in Shari’a compliant securities.
Within the UAE, Takaful products are sold mainly through broker and agency/ advisor distribution channels. In contrast, in Malaysia, Islamic banks are being utilised for their existing customer base to provide a whole new distribution channel to Takaful operators known as bancatakaful. As a result, Takaful operators within the UAE are now quickly catching on to leverage bank distribution for Takaful products. Noor Takaful, for example, has leveraged on its relationship with Islamic banks and led the market with unique new products such as ‘Smart Save Plus’ and a ‘Single Pay Jumbo Plan’ which are sold mainly through the bancatakaful distribution channel.
So far, Middle Eastern Takaful operators have concentrated almost 90 per cent of their takaful activities in the non-life sector of Islamic insurance, whereas in Malaysia, that number is a complete reciprocal, building almost 75% of their activity from within the life sector of Takaful. According to the Dubai Center for Islamic Banking and Finance (DCIBF), only 5 out of the 16 Takaful operators produced a surplus in 2014 in the GCC region. In Asia, that number is even lower - sitting at just 10% of 56 Takaful operators who have produced positive results between 2011- 2013.
In order for Takaful companies to grow, they must focus on customer centricity, the innovation of new products/services, adhering to the customer’s needs, and the implementation of technological enhancements within the organisation - that allows for accurate assessment of risks, while at the same time maintaining the core Islamic values on which Takaful is built.
With readily available information now online, customers are more aware of their needs today than ever before. These buyers have an abundance of options to select from when it comes to Takaful products/services, and Takaful companies need to make more information and products available through online access.
Although both Islamic Takaful and Islamic Banking started at the same point in time in history - around the 1970’s – according to the same DCIBF report, the banking sector has taken off to a massive global revenue size of 1 trillion dollars, whereas the Takaful sector has yet to reach the 50 billion dollar mark from a revenue perspective.
With its relatively new entry into the region as compared to its conventional counterpart, the challenge for the Takaful industry and specifically the Takaful operators to achieve full potential, is to bring new products and technologies to customers, and offer a reasonable pricing of risks alongside efficient business processes.
There is significant potential for consolidation among regional Takaful operators. Countries like Indonesia and Malaysia, for example, with significantly larger populations that the GCC, have achieved deeper penetration with fewer Takaful operators.
Consolidation of Takaful companies in the future may boost growth prospects by instilling greater confidence among customers. Fewer and larger Takaful companies, with larger financial resources will lead to greater financial stability and better ability to compete while focusing on improved risk pricing. In addition, customer trust must be promoted by focusing on corporate governance and ensuring adherence to new regulatory standards. For example, with the recent regulatory changes, new opportunities to demonstrate customer value are opening up, such as mandatory medical insurance and better customer service and response times, all of which point to prospects for greater growth for Takaful companies, especially in the UAE.
The writer is the CEO of Noor Takaful. Views expressed in the column are the writer’s own and do not reflect that of the newspaper.
(Gulf News Banking / 25 April 2016)---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com