A new working paper released by the Islamic Financial Services Board (IFSB) suggests that market practices can deviate significantly from supervisory expectations, particularly with regard to the scope for takaful operators and intermediaries seeking to maximise their own benefit rather than to pursue the consumer’s best interests.
Supported by the results of industry-wide survey responses from takaful operators and their regulatory and supervisory authorities, the working paper explores how an effective and comprehensive consumer protection regime can be designed and implemented throughout different phases of customer engagement with takaful operators and their intermediaries, said the IFSB in a statement.
IFSB secretary general Dr Bello Lawal Danbatta said, “This new working paper identifies challenges to consumer protection arising from asymmetry of information and difficulties of consumers in evaluating product quality and price, as well as challenges arising from distribution and promotion practices, and from specific features of takaful. Moreover, the paper identifies regulatory issues faced in designing and implementing effective and efficient consumer protection regulations, and suggests ways to strengthen regulatory oversight of market players.
“Given the high expectations of consumers seeking shariah-compliant solutions to their risk coverage through takaful, a well-developed consumer protection regime can guide market operators to provide better products and services to cope with the needs of the public and the economy.”
A large proportion of takaful sales in the consumer sector is distributed through traditional distribution channels.
The potential conflict of interest is often present in selling practices, and the ability of market players to exploit it presents potential for reputational damage in a sector where consumer confidence is an essential attribute.
The paper emphasises the fair treatment of consumers, to cover the whole product life cycle from development, to distribution and to claims settlement, in order to reduce the potential risks for mis-selling and other forms of consumer detriments. Further, it recognises that different jurisdictions have different approaches to addressing these issues.
In the paper, the Kuala Lumpur-headquartered international standard-setting organisation identifies evolving business models and the use of emerging technologies to re-engineer consumers’ experience from the purchase of takaful products to filing of claims, with benefits and threats that these changes may bring.
It also cites regulatory and supervisory best practices from various jurisdictions on the conduct of business in takaful that could form a basis for a common framework in addition to the existing IFSB standards and guiding principles. The paper acknowledges the role of consumer education in creating awareness and uptake of takaful products. M