With takaful worldwide witnessing slower growth, there is a dire need to look into the challenges and embed the principles of mutuality and cooperativeness to give a push to the industry and help operators improve their results, said experts at the Third Takaful Seminar in Cairo.
The global takaful market grew by 18% over the past five years, with contributions expected to touch US$20 billion by 2017, noted Mr Abd El-Raouf Kotb, Chairman of the Insurance Federation of Egypt (IFE).
“However, the major challenge facing the takaful industry is boosting top-line growth while also focussing on technical profitability,” he said, pointing out that the evolving regulatory landscape, and pricing dynamics are key factors which will shape the direction of the industry.
Mr Kotb added that the readiness of the operators to respond to new market conditions and rapidly adapt to capture new emerging opportunities are key in taking takaful to the next level.
Evolving nature spells good opportunities
The takaful industry is still evolving and even markets which embraced the concept much earlier are yet to stabilise, with many legal, regulatory and operational frameworks frequently revised, noted Mr Ismail Mahbob, Global Takaful Group (GTG) Secretariat.
Its evolving nature, however, spells good prospects for growth. “It is still showing double-digit growth and will continue to remain healthy, especially with the rapid expansion of overall global Islamic finance markets,” he said.
Mr Omar Gouda, Regional Director, North East Africa and Middle East with Africa Re said that though growth has been slowing, the rate is still high compared to that of the insurance industry. However, takaful markets are expected to grow faster than is presently the case.
In Egypt, takaful contributions have quadrupled since 2010, but there is still a long way to go for the business, said Mr Sherif Samy, Chairman of the Egyptian Financial Services Authority (EFSA). He added that EFSA will soon finalise the bill for a new insurance law which will include articles addressing takaful operations.
Little achieved since 2011
Takaful bodies have achieved little since the Colombo Declaration of 2011, noted Mr Salah Eldin Musa, Chair of the International Cooperative and Mutual Insurance Federation (ICMIF) Takaful Network and Managing Director of Shiekan Insurance and Reinsurance Co.
“We need to have more cooperation, exert more effort and allocate more resources to achieve the Colombo Declaration objectives,” he said.
Among the Declaration’s objectives are improving access to takaful in emerging markets, facilitating cooperation between takaful and retakaful operators and associations across the globe, and raising awareness of takaful values worldwide.
Success stories
The seminar also heard from speakers on how certain challenges have been tackled.
In Sri Lanka, Amana Takaful has come up with an innovative way of facing a regulatory challenge. According to the law, 30% of the company’s investments has to be in treasury bills, which is considered to be against Shariah principles since interest, or riba, is involved. CEO M Fazal Ghaffoor suggested accepting the money and paying them back to the same source, the government, as tax payments. He said this was approved by the Shariah board, especially since Islamic jurisprudence suggests that the interest amount should remain in the account and not received, and therefore should be kept with the provider – in this case, the government.
Elsewhere, takaful is increasing its presence in new markets. Speakers shared experiences in markets such as France and Kenya, where the idea of takaful as a means of risk sharing as opposed to risk transfer has been a selling point. In Egypt, takaful growth is outpacing the conventional industry with some operators distributing surpluses for a few consecutive years.
Accepting conventional business
The validity of the model was also heavily debated, with operators arguing whether retakaful providers should accept conventional business.
Provided there is Shariah compliance, Mr Mohamed El Dishish, CEO of Emirates Retakaful, believes retakaful operators should accept business from conventional insurers on the basis that takaful is for non-Muslims as well as Muslims. He said this would help utilise retakaful capacity which is currently focussed on takaful.
However, Mr Yousif El Lazim, Senior Underwriter with Africa Retakaful said such a practice might lead to a mixing of funds and profits. He added that this might affect the model’s purity and hinder the development of the takaful experience overall.
Looking at the issue from a technical perspective, Mr Firas El Azem, General Manager of Takaful Re said there are features in the model which should compel retakaful providers to consider accepting conventional business. He pointed out that most of those focussing on takaful business are feeling the pinch; for example, from qard hasan. He stressed that while most retakaful operators are stable and are not facing solvency issues, accepting conventional business should be considered in future.
With the theme “Back to Basics? Can we enhance the mutuality in Takaful?”, the seminar was jointly organised by GTG, ICMIF and the International Federation for Takaful and Islamic Insurance Companies (IFTI). Around 110 delegates from various countries attended the event.