Islamic Insurance in 21st Century by Ahmad Feizal
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Takaful
Successful Islamic insurance
operations in the 21st century
Ahmad Feizal Sulaiman Khan
Head, Business Development,
Etiqa - ICBU
feizal.sk@etiqa.com.my June 16, 2008
1
Takaful % share of insurance market
0.7
2
Insurance: Annual GWP ($trn)
3
Agenda
• Success!? of Takaful
• Initiatives such as MIFC
• Food for thought
• Conclusion
• eTiQa
4
Success!? Of Takaful
5
Success!? of Takaful
Global takaful contributions
USDb
3.0
2.0
3.6
Source: Takaful Industry, Global
1.0 Profile & Islamic Finance Review
1.4
0.5
0.0
2000 2004 2010
Takaful contributions
• Total of 139 takaful operators including windows
(Source: Best Re & Survey on Takaful and Retakaful Development by Malaysia-IDB)
• Expected to grow between 15% - 20% p.a. to reach USD7.4 bn annual premiums by 2015
(Source: 2005 Global Takaful Review, Islamic Finance News)
• Greater participation of conventional markets e.g. UK, premium growth est. :
from USD6 million in 2000 to USD260 million by year 2015 (source: Prospects for Evolution of Takaful
in the 21st Century by Omar Fisher and Dawood Y. Taylor, presented at 5th Harvard University Forum on
Islamic Finance)
• Additional new licences granted in the Middle East and Indonesia
• Malaysia and Indonesia at the forefront of Takaful business (USD 1.4 billion in premiums)
6
Success!? of Takaful
Takaful Operators Worldwide
7
Success!? of Takaful
Growing pains
• Penetration Rate:
• Not enough focus on customer convenience and easily explainable products
• Wider availability necessary for Takaful products
• New markets, not only Muslims but also non-Muslims
• Brand awareness & Global recognition – Cross border activities still minimal
– must transpire into guidelines for ease of ‘passporting’
– Takaful as a brand as well as the underlying companies not recognized
• Public awareness is low:
• Adequate training to agents / dist. Channels and education
• Incentive modes – to be creative – akin to Wakalah model
• Banca development - Takaful products need to become bankable (easy access)
• Competitive pricing
• Innovative product development – infant stage compared to structured / tailor made
wealth mgt/protection solution
– one stop centre – to include Islamic trust, will-writing and investment services
8
Success!? of Takaful
Growing pains
RE-TAKAFUL Operators
Few re-Takaful operators
Around 13 re-Takaful companies operating worldwide
currently in operation
Strong security rating Only 1 rated re-Takaful operator
High capitalization Highest capitalization of re-Takaful operator USD125m
Proven track record of Most retakaful operators are newly established compared
technical expertise
with professional re-insurers, therefore perceived to have
less value proposition by ceding Takaful companies
• But how much re-Takaful capacity do we need?
• Currently there are no known credible database collating statistics on size of
global Takaful and re-Takaful market
• Conclusion : Growth in Takaful industry is still desired to fill in gap, creating
sizeable demand for re-Takaful
9
Success!? of Takaful
One Stop Centre - Holistic Service Offering
Art of wealth Income, capital
Realising one’s interests in preservation
society, culture, leisure or the Preserving standards of living
arts. & continued cash flows.
Entrepreneurial ambition
Development/expansion of
entrepreneurial activities & Capital protection
talents. Building, protecting &
transferring wealth
Growth
Structures allowing
a LT increase in
wealth.
10
Success!? of Takaful
The Global Takaful Market
Muslims in Predominantly • GDP of USD 1.5 Trillion (4% of World GDP)*
Muslim Countries • State support for Islamic Financial Solutions.
• Disparate levels of Economic Development.
Muslim Minorities Large Minorities in China, India.
• Growing Middle Class in Europe & North
• America.
• May be more Observant than Muslims in Predominantly
Muslim Countries.
Non- Muslims
• Takaful may need to be repositioned to emphasize its
Universal Values:
–Ethical.
–Mutual Sharing & Ownership.
–Transparent.
• Build on the success of Islamic Banking.
*Ref: A snapshot of the current economic state of Muslim Countries-
Hamid, 2006
11
Success!? of Takaful
Europe Potential?? - European Muslims
More than 50 million Muslims in Europe
14 million in the European Union
Numbers have tripled in the last 30 years
Most demographers forecast similar or higher future growth
Islam is the fastest growing religion In Europe
Strong culture of insurance especially in the UK, France and
Netherlands
12
Initiatives such as MIFC
13
MIFC
Malaysia International Islamic Financial Centre
• To create a vibrant, innovative and competitive international Islamic financial services
industry in Malaysia, supported by high calibre human talents, world-class
infrastructure and best international standards.
• This initiative has been made a national agenda by the Prime Minister to strengthen
Malaysia’s position as an Islamic financial hub.
• Objectives are:
• Rapid development of the domestic Islamic financial system
• Liberalisation of Islamic banking and Takaful market through increase in foreign
participation with the presence of international institutions, eg. ICBU model
• Global integration of the Islamic financial system with active involvement
• A wide variety of financial products and a vibrant financial market, growing pool of
talents and resources
• Effective role in promoting Takaful internationally especially among Islamic
Development Bank member countries.
14
MIFC
Distributor Focus under MIFC
International Takaful
Operator (ITO)
Onshore Offshore
- Banca
Int’l JV Int’l Currency
- 3rd party banca
Business Unit (ICBU)
-Onshore focused
- Suitable business - Regulated offshore
partners environment
- G to G recognition goes a long
- Underwriting Base way
Capital required - Central booking
- To export and import creativity and
product innovativeness
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MIFC
International Currency Business Unit
An ICBU can be set up under an Islamic bank or a Takaful operator
Takaful ICBU:
• Non-Ringgit composite Takaful and Re-Takaful business
• Focus on Non-residents
• International currencies other than Malaysian Ringgit
• Window of opportunity to deal with residents
• Tax advantages in promoting ICBU model
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MIFC
The Malaysian Takaful Journey
Special
Task Takaful Commerce
Force Act Takaful
1982 1984 2005
1983 1984 1993 2001 2003 2006
Bank Syarikat Takaful Mayban Takaful 4 New
Islam Takaful Nasional Takaful Ikhlas licences
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MIFC
Takaful Growth in Malaysia
Takaful is expected to constitute some 20% of the total insurance market in Malaysia by
2010 (US$1.85 billion)
Penetration Rate- Malaysia
50
45 44.3
43.0
40 41.2
38.4 37.9 38.7
36.1 36.7
35
Penetration rate %
34.0 34.6
32.9
31.5
30
25
20
15
10
5 4.5 5.1 5.6
3.2 3.8
2.5
0
2000 2001 2002 2003 2004 2005
Year
Takaful Insurance Total
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Food for thought
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Food for thought
Ambitions/opportunities!?
Move Takaful out of infancy stage
• Open markets
• Forward looking instead of backward looking
• Driven by co-operative nature of the business
• Brand and content recognition – young industry
• Necessary to develop a (inter)-national plan
20
Food for thought Food for thought
How will Takaful Opportunities be realised?
Open Markets
• Open markets agreement (similar to open skies agreement)
• Liberalization of Islamic markets
• Harmonize Shariah interpretation with the objective to:
• Grow the combined Takaful market together
• Allow and stimulate reciprocal business between Islamic countries
• Redefine regulatory environment
• Positive discrimination such as
• Tax incentives
• Additional benefits
Forward looking instead of backward looking
• Act as one , eg , MTA in Msia, or GTG globally
• Growth opportunities
• Number of interested parties is growing (Muslims & Institutions)
• Focus still on non-life
21
Food for thought Food for thought
How will Takaful Opportunities be realised?
Driven by co-operative nature of business
• Concept of Takaful is genuine and appealing to the masses
• More even and fair compared to traditional insurance
Brand and content recognition
• Takaful brands are still relatively young
• Islamic and Takaful could have the wrong connotation
• Viability of Takaful operators could be questioned
• Many potentially interested parties are illiterate with regards to Takaful
National and international plan
(through f.i. “Organisation of Islamic Conference” (OIC) and “The Islamic Financial
Services Board” (IFSB) and the “Islamic Development Bank” (IDB)
22
Conclusion
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Conclusion = Success Formula
Est.1.7bln Muslims globally
+
Muslims seeking out halal products
+
Dedicated Global Takaful players
+
Utilising world class insurance skills
=
Successful Global Takaful
With technology - Launch products in a month’s time...
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eTiQa
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eTiQa
Old and new structure
Old New
Maybank Fortis Insurance Maybank Fortis Insurance
70% 30% 70% 30%
Mayban Fortis Sdn Bhd Mayban Fortis Sdn Bhd
MLA MGA MTB eTiQa Takaful eTiQa Insurance
Former MTB and TN Former MLA, MGA and MNI
TN MNI
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eTiQa
VALUES
Crystal clear “We like to keep things clear”
Hand in hand “With diversity we create opportunity”
Performance with conscience “There is care in what we do”
Rock solid “We have a firm foundation to build on”
OBJECTIVES
Ethical approach:
• Transparency necessary
• Harmonization necessary
• Incentives necessary
Global approach
• Partnership between Maybank and Fortis – East meets West
• Technical collaboration – Takaful experts combines with Banca / investment experts
Humanization
• Value adding – benefits must be clear and upfront
• Localised towards the various regions
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Thank you!
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