SALAMA CEO forecasts double digit Takaful growth over next decade

In a Key Note speech to the Asian Takaful Conference in Singapore, Dr Malaikah told delegates growth in the range of 15% to 20% can be sustained for at least the next 10 years as new markets open up and Shari'a compliant products are launched to meet the insurance needs of the region's Moslems.

"Today we stand at a point that promises to herald an era of phenomenal growth in Takaful markets," Dr Malaikah said. "The Takaful movement is being driven by strong demand from the public whose religious beliefs impel them to seek Shari'a compliant insurance solutions and who would not insure otherwise.

"This demand feeds on the successful development of Islamic banking institutions providing capital and Islamic financial instruments for asset management and investment," added Dr Malaikah.

Takaful is one of the fastest growing sectors of the insurance industry, representing around 20% of annual premiums collected. Global Takaful premiums are conservatively estimated at around US$ 3 billion of which 60% goes to General Takaful products and the remaining 40% for Family Takaful products.

The Middle East accounts for 36% of collected premiums. About 56% are generated in South East Asia, while Africa accounts for 7% and the rest of the world only 1%.

Dr Malaikah said that General Takaful currently leads the way in Middle East markets. However, the trend is slowly changing with the advent of highly capitalised Takaful players in the GCC who are determined to develop Family Takaful products.

"From a handful of operators less than three decades ago, Takaful has blossomed to a movement that promises to become a fast growth phenomenon not only in Moslem countries but also in Europe, North America, Central Asia and Australia, where large Moslem communities represent huge untapped reservoirs of demand for Takaful solutions," said Dr Malaikah.

"The success of Takaful largely depends on the global success of Islamic financial institutions. Hence, there is a real need to develop strategic alliances and identify synergies between Islamic operators at the international level. Such a goal, however, can only be achieved through a comprehensive legal framework and regulatory environments that help bring out the innate competencies of the Shari'a compliant approach."

Dr Malaikah urged the Takaful industry to adopt a standard business model and harmonise Takaful practices to help sustain growth and ensure fair competition and adequate levels of transparency.

He said the existence of two business models, Mudaraba, based on profit and loss sharing between the operator and the policyholders, and Wakala, that replaces surplus sharing with a performance fee, poses a dilemma for the Takaful industry. The recent emergence of a third business model, Waqf, has compounded the problem.

"The existence of these diverse business models could create an uneven and unfair business environment," Dr Malaikah said. "The Takaful movement, therefore, must reach a consensus on adopting a standard business model globally."

In addition, Dr Malaikah said, regional institutions and organisations should get together to standardise Takaful practices. He called on the Islamic Financial Services Board (IFSB), the ASEAN Takaful Group (ATG), the International Takaful Association (ITA), and the Accounting & Auditing Organization of Islamic Financial Institution (AAOIFI) to work together to promote standard practices within the industry.

He added that it would also be beneficial if Re-Takaful companies pooled their resources to create resilient Re-Takaful solutions.

"We all need to support efforts to promote a strong Re-Takaful operator capable of playing a leading role in providing first class security, capacity, and value-added services," Dr Malaikah told delegates. "The biggest challenge, I believe, would be to develop a re-Takaful hub capable of hosting the maximum number of re-Takaful offers."