View source for Takaful Opperunities and Challenges By Azeem Pirani

                                Takaful

                 Opportunities & Challenges

                  for the Pakistani Market

                                   Azeem Pirani

                   Head of Marketing & Alternate Distribution

                           Pak-Qatar Family Takaful

11th August 2007       August 11th, 2007 – Avari Hotel, Lahore 1


Agenda

           Takaful – A product and an ideology

           Differences between Takaful & Insurance

           The Pakistani Market

                 Overview

                 Challenges

                 Opportunities

           Our responsibility

           Conclusion

11th August 2007                                   2


Takaful- A product and an Ideology

      Takaful comes from the Arabic root-word ‘kafala’-

      guarantee

      Takaful is not only a tool to mitigate loss or to make

      halal profits. It is an ideology which promotes

             Solidarity and joint guarantee

             Self reliance and self sustainability for community

             well being

             Assistance to those that need it

             Community pooling system

11th August 2007                                                 3


Differences between

Takaful & Insurance

      What is Insurance?

             A tool for Risk Mitigation and Financial

             Protection

             A tool to enable people to save (Life Insurance)

      Key differences between Takaful and Insurance are:

             Risk Sharing Vs. Risk Transfer

             Wakeel Vs. Guarantor

             Ameen Vs. Owner

             Different type of Contract

11th August 2007                                              4


Differences between

Takaful & Insurance (cont.)

Issue            Conventional          Takaful

                 Insurance

Basis            Risk Transfer         Co-operative risk sharing

Laws             Secular/Regulations   Shariah & Prudential

                                       regulations

Ownership        Shareholders          Participants

Mgmt status      Company Management    Operator

Form of Contract Contract of Sale      Cooperative, Wakala or

                                       Mudarbah with Tabar’ru

                                       (contributions)

Investments      Interest based        Shariah compliant

Surplus          Shareholders’ account Participants’ account


The Pakistani Market –

An Overview

      Pakistan - Overall

             Population: 6th amongst global nations. 166 m.

             Population in 2015: Still 6th . 193 m.

             Urbanization: Presently at 33%

             Urbanization by 2015: 39%

             GDP Per Capita: $753

11th August 2007                                            6


The Pakistani Market –

An Overview (cont)

      Pakistan – Insurance Market

             Penetration of Insurance

                 Pakistan: 0.7% of GDP

                 India: more than 3% of GDP

                 Iran: approx. 1% of GDP

             Family & General Companies

             Few Innovative Products. Very recent change in

             this area

11th August 2007                                            7


The Pakistani Market –

Challenges for Takaful

      Resistance to Insurance, and its benefits, due to

      different reasons

             Conservative spending habits

             Ignorance of its benefits

             Products which do not meet buyers needs

             Religious reasons

                 Tawakkul issue

                    “Tie your camel first, then put your trust in Allah (SWT)”.

                    <Tirmidhi>

                    “It is better for you to leave your heirs wealthy rather

                    than poor and asking others for their needs”.

                 Non-Shariah compliant elements

11th August 2007                                                              8


The Pakistani Market –

Challenges for Takaful (cont.)

      Government regulations untested

      Human resources for the sector

             Shortage of trained human resources in insurance

             Negligible knowledge of Takaful present amongst

             the public

             Few training programs available for Takaful and

             insurance

             Insurance has generally never been the

             occupation of first choice for new graduates

11th August 2007                                              9


The Pakistani Market –

Challenges for Takaful (cont.)

      Education and Awareness

             Lack of knowledge about Takaful and insurance

             amongst the masses

             Ignorance of Takaful amongst the ulema

             Significant budget required just to ensure that

             knowledge permeates to all segments/levels of society

      Marketing & Sales issues

             Poor impression of insurance sales persons amongst

             the public

             Generally poor ethical standards amongst insurance

             sales persons

             General lack of faith on insurance companies meeting

             their obligation in a efficient and polite manner

11th August 2007                                                  10


The Pakistani Market –

Challenges for Takaful (cont.)

      Operational Issues

             Limited avenues for revenue at Takaful co. as

             compared to insurance ones

             To be competitive Takaful co. will need to use effective

             IT systems – heavy investments

             New Takaful co. will need to ensure that they do

             prudent underwriting; thus eating into the possibility

             of having a larger number of customers

11th August 2007                                                     11


The Pakistani Market –

Opportunities for Takaful

     Economic/Social conditions in Pakistan make

     Takaful a NECESSITY

             Lack of govt. social safety net

             Negligible provision of reliable health care

             by the govt.

             Quality education is beyond the reach of the

             average citizen and the institutions provided

             by the govt. lack the required standards

11th August 2007                                           12


The Pakistani Market –

Opportunities for Takaful (cont.)

     Strong growth in the Islamic financial sector

     provides Takaful with a natural market

             Islamic Banks and mutual funds will need Takaful to

             package with their other products

             Islamic Financial institutions presently have no

             Family coverage for their staff

     Massive untapped market in Pakistan for risk

     mitigation tools

             Given the necessity of these tools insurance has not

             even touched the surface

             Given the ‘plain vanilla’ menu provided to customers

             there is a great opportunity for innovation

11th August 2007                                                  13


The Pakistani Market –

Opportunities for Takaful (cont.)

     Ethical and Shariah compliant model for risk

     mitigation and financial protection

             Large number of people who stay away from

             insurance due to religious beliefs

             Large number of our population can be

             considered as ‘religious’ and so Takaful will be in

             line with their beliefs

             Educated citizens, although not religious would

             prefer to use an ethical model than one which is

             built on making profits by trying to avoid having

             to pay claims

11th August 2007                                                 14


Takaful –

What should you do about it?

     As educated professionals WE have a responsibility

     to our fellow citizens to guide them to what is good

     for them. This is especially important when the

     people are living at a level where income equals

     expenses

             Convey the critical nature of financial protection to

             others

             Explain the benefits of getting financial protection

             Introduce the new concept which is not only ethical

             but also Shariah compliant

     Just start from those around you….

11th August 2007                                                   15


Conclusion

     Takaful is not only here to stay; it’s going to GROW!

     It’s ethical and Shariah compliant nature allows

     Takaful to overcome the inherent problems with

     Insurance

     The Pakistani market has challenges but also has a

     lot of opportunities

     There are a lot of opportunities for Takaful operators

     to make healthy profits in Pakistan

     Although Insurance coverage is not the norm in

     Pakistan we need to work to make Takaful

     something everybody uses

11th August 2007                                            16


Conclusion (cont.)

11th August 2007   17


Jazak-Allah khair

For further information contact:

      (021) 438-0357 to 61

      info@pakqatar.com.pk

      www.pakqatar.com.pk  (launching soon!)

11th August 2007                             18