The development of more family takaful business, overseen by prudent regulations to ensure that risks are being priced properly, can help to increase the size of the takaful industry in markets outside of Malaysia, particularly if it can reach a similar scale as in the latter, said Mr Blake Goud, Chief Research Officer of Middle East Global Advisors in a report.
At the level of development for family takaful in Malaysia, the business is able to grow more than 10% faster than conventional life insurance, he said.
The experience in Middle Eastern insurance and takaful markets, with the possible exception of Saudi Arabia, stands in stark contrast with the more favourable developments occurring in Malaysia. Despite the economic disruption in 2015 caused by the decline in the ringgit and slowing of the economy, takaful continued growing at a faster rate than conventional insurance, Mr Blake noted.
The most notable aspect of Malaysia’s takaful market is the sizeable share represented by family takaful—almost two-thirds—in contrast to under one-quarter of the market in the GCC, he said.
The development of takaful – and insurance more broadly – in the Middle East has seen much more growth in compulsory lines like auto and health insurance. Many insurance professionals in the Middle East (both conventional and Islamic) said that the biggest challenge facing the industry in 2016 is intensified competition.
The competition, which is particularly intense in personal non-life lines, shifts pricing away from the underlying risk which forces insurers to depend on more volatile investment income to make profits. As the markets from which they generate this income (fixed income or real estate) are hit by turmoil, as they are today, it can hit insurers’ profits hard.
Developing family takaful has benefits too for the consumers, who are able to buy protection for their families from unforeseen injury or death, as well as investment options that combine insurance which can provide a replacement for the private pension systems that are absent today and may be necessary in the future if governments (particularly in the GCC) are forced to cut back spending because of fiscal considerations.
By collecting a large, relatively stable base of assets, that must be invested to meet relatively predictable long-term liabilities, an institutional asset base that is lacking in domestic markets can be created.