Several constraints could hamper takaful at its launch in the country, according to the Moroccan Association for Participatory Finance Professionals (AMFP). These constraints include the operating model to be adopted, limited products and limited investment options.
The operating model imposed by regulation could systematically induce more expensive premiums compared to conventional insurance.
The scope of operations and options for allocating resources to new operators would be limited initially, reported La Vie Eco citing the association.
AMFP experts deduce that the takaful model to be used will consist of wakala, in which the operator derives its remuneration only from the fees deducted at source from contributions to the takaful fund. This would imply a surcharge included in the contributions to cater for the remuneration.
According to the AMFP, if the wakala model is adopted, there is a good chance that premiums priced by takaful operators will be higher than those of conventional insurers. This will constitute a major competitive disadvantage in terms of price for Islamic insurers.
To counter this, the study recommends the adoption of a modified wakala model where, in addition to commissions, the operator would have an interest in the technical surplus.
A limited catalogue of products
The second constraint identified by the association is that takaful operators will start operations with a limited range of products. Initially, Islamic insurance products in Morocco is likely to be limited to family takaful, according to the AMFP. It said that this would be a limitation imposed by the public authorities in the process of running in a new sector, with a desire to avoid destabilisation of the conventional market. This implies general takaful products will be unavailable initially.
The problem is not, however, unsolvable and experts believe that lending banks will be able to adapt their risk management by substituting the required general takaful products with innovative hedges.
The last constraint relates to limited options for asset allocation. As in the case of conventional insurers, new players will have to place at least 30% of premiums collected in non-risky assets. In Islamic finance, the only asset that meets these criteria is sukuk. However, no instrument of this kind has been issued so far, although measures were launched last September to undertake the first sukuk issuance in the first half of this year. To fill this void, operators will have the option of investing in sukuk issued abroad.
AMFP experts believe that in investments, takaful operators will also have to deal with a narrow stock market in general and the scarcity of Shariah-compliant listed companies.
The AMFP was formed in 2013 to contribute to the development of Islamic finance. The authorities are currently drafting regulations for takaful. M