Malaysia: IFSB issues the first working paper on takaful
Source: Middle East Insurance Review | Sep 2018
The Islamic Financial Services Board (IFSB) issued its eighth working paper titled ‘Issues arising from changes in takaful capital requirements’. It is the first dedicated IFSB working paper on the takaful sector.
The paper aims at studying the potential issues in relation to the solvency requirements of takaful such as surplus, capital requirements and qard. It also identifies regulatory and stability issues arising from global capital regulation for the insurance sector and their implications on takaful solvency requirements.
IFSB secretary-general Dr Bello Lawal Danbatta said, “Although the IFSB has previously issued seven working paper series on different topics in Islamic finance, WP-08 represents the first IFSB’s working paper that addresses issues specifically to the takaful industry. In the development of our technical work involving standard-setting and research, we are taking a comprehensive, cross-sectoral approach in which three key sectors under our mandate – Islamic banking, takaful and Islamic capital market – are being focused on simultaneously.”
He added, “This research has been conducted in an area of takaful sector regulation where only limited studies are currently available. Given the rapidly growing size of this sector and increasing importance being given to strengthen solvency of takaful undertakings, this paper offers deep insights, backed by industry-wide survey and empirical analysis.”
The survey saw the participation of 57 institutions, including regulatory and supervisory authorities and takaful operators.
The paper identifies differences and gaps in the development of capital requirements regulation across the jurisdictions that participated in the survey, and shows that the level of policyholders’ protections depend on the strength of capital requirements’ regulation. The lack of appropriate guidelines specific to the takaful industry in most jurisdictions leaves opportunities for takaful operators to exercise inappropriate discretion in aspects that require regulatory guidelines and supervision. This practice raises concerns for an increased risk of insolvency and a potential threat to consumers’ confidence in the industry. Appropriate guidelines that recognise the specific structures and processes of takaful undertakings are recommended for the assessment of the capital requirements.