Prospects for growth in the takaful sector in the GCC remain positive, as takaful operators are realigning their strategic focus towards meeting the needs of the market, says the "Islamic Financial Services Industry Stability Report 2019" released last week by Kuala Lumpur-based Islamic Financial Services Board (IFSB).
Expansionary fiscal policies are expected to drive economic activities, and boost demand for takaful. In addition, a series of regulatory initiatives introduced in the sector is expected to drive the market's growth and boost its attractiveness.
With respect to family takaful, given the low penetration rates, the increasing awareness and acceptance of Shariah compliant product offerings among the large Muslim population is likely to support growth.
The report, commenting on the financial performance of the Islamic insurance sector in the GCC in previous years, says that economic slowdown in the region stifled the growth of takaful contributions by 6.87%, reducing it to an estimated $11.71bn in 2017 ($12.57bn: 2016). However, the region maintains its lead as the largest global takaful market, with a share of over 44%.
The contraction in the general business in Saudi Arabia (the largest Islamic insurance market) was the main cause of the drag on overall contributions. General business segments, which represented 45% of total contributions written in Saudi Arabia, declined by 4.9% while motor business lines (accounting for 68.2% of general business segment) declined by 8.4% at the end of 2017.
The recovery in oil prices since mid-2017 was not enough to boost economic growth in the GCC, due to oil production cuts and the resulting decline in revenues (i.e. GDP growth in Saudi Arabia fell 0.7%).
Given that the contribution growth in general takaful segments closely follows economic growth, the cut in public spending on social and infrastructure development has adversely impacted contributions growth in the general business segment in Saudi Arabia. A similar situation is evident in other countries. Qatar, for instance, has cut public spending on non-FIFA World Cup related projects.
The UAE has been fairly resilient in the face of the growth headwind, reporting an estimated double-digit growth of 13.2% in 2017, compared to Oman, Qatar and Bahrain with a modest growth of 9%, 8.5% and 4.2%, respectively.
The sector has benefited from the increase in demand, resulting from the introduction of compulsory cover in medical and liability business. General takaful made up 87% of the gross contributions in Kuwait ($276.4m). Motor and medical were the largest lines, controlling 40% and 22%, respectively.
Meanwhile, the general takaful segment in Saudi Arabia and the UAE, has benefitted from regulatory changes such as setting minimum pricing for motor insurance and the introduction of mandatory health insurance for workers.
Oman is also implementing its mandatory health insurance scheme for private sector employees, including expatriates and visitors before the close of 2019.
Family takaful is relatively small compared to the general takaful business in the GCC, accounting for less than one fifth of the total takaful contributions in 2017. The region’s family takaful penetration is much lower than the life insurance sector, estimated at 0.3% in 2017.
Family takaful business in the UAE ranked highest in the region, with a double-digit growth rate of roughly 13% in 2017, driven by demand from a large expatriate population and an expanding middle class. Family takaful business in Kuwait grew by 20.6% in 2017, accounting for 13% of the gross takaful contributions, mainly contributed by group family takaful. In Oman, family takaful grew by 19% in 2017, slightly above the 2016 record (18%), with individual family products accounting for a significant portion of the sales.
In Saudi Arabia, contributions from the family line improved to 8.5% in 2017 (1.5%: 2016), due mainly to the introduction of mortgage cover and increasing activities of the bancassurance channel (i.e. providing multiple services through one touchpoint). Contributions from family takaful underperformed in both Bahrain and Qatar amidst the economic slowdown. Given the low penetration rate, the increasing awareness and acceptance of and demand for family takaful products, and the growth of private-sector employment, the family takaful sector is likely to grow further.