Opertunities in Islamic Insurance

Opportunities in Islamic

       Insurance

Insurance Institute of London

     November 14th 2006

     Overview of presentation

• About ICMIF

• What is Islamic Insurance (Takaful)?

• Growth and outlook

• Takaful in Non-Muslim countries

• Potential in the United Kingdom

                 About ICMIF

• Established in 1922

• 174 members from 69 countries

• Member driven services

• 17 Takaful members since 2002

 Why is conventional insurance

               not permissible?

• Uncertainty (Gharar)

• Gambling (Maisir)

• Interest (Riba)

Earlier forms of Islamic insurance

• Dawania – Mutual indemnification amongst officers during

 the rule of Umar Ibn Al Khattab (2nd Caliph)

• Diyyah and Aquilah – Blood money and concept of

 removing hardship from victims family by payment of

 Diyyah, on a mutual basis, by relatives of offender

• Marine Insurance – Early second century – mutual fund to

 cover robberies and mishaps

 Fiqh Academy Resolution 1985

• Commerical insurance is prohibited

• Alternative contract confirming to principles of Islamic

 dealings is the contract of cooperative insurance, which is

 founded on the basis of charitable donation and Shariah

 compliant dealings

          Principles of Takaful

• Solidarity and joint guarantee

• Self reliance and self sustaining for community well being

• Assist those that need assistance

• Community pooling system

• Shari’ah approved investments and products

               “Bear ye one another’s burden”

   Takaful models in practice

• Not for profit model

• Ta’awuni model – “cooperative insurance”

• Al Mudharabah model – profit sharing

• Al Wakala model – agency agreement

        Growth of the sector

• 1979 First Takaful Company established

• 1996 – 30 Institutions transacting Takaful

• 2002 – 50 Takaful operators and four Retakaful providers

• 2006 – 80 Takaful operators, 120 Takaful windows,12

 Retakaful providers and premiums of $3billion

       Future growth factors

• High potential for growth of insurance sector

• Retakaful capacity being established

• Increase in Shariah compliant investment products

• Harmonization of models and regulation

• Increase in technical expertise and consumer awareness.

            Future Outlook

• Ajmal Bhatty (2001) – USD$ 7.14 bn by 2015

• Dr Malaikah (2006) – Double digit growth over

 next ten years

• Atlas Business Magazine (2006) – USD$ 12-14bn

 by 2015

Islamic Insurance in Non-

   Muslim countries

 Takaful in Non-Muslim Countries

          Is there a need?

Country   Est. Muslim   Country   Est. Muslim

           population             population

Argentina 800,000 Italy 600,000

 Brazil     1 million   Japan     1.3 million

Canada      500,000      USAUnited States of America      10 million

France    4.8 million Netherlands  500,000

Germany 3 million UK 2 million

  Takaful in Non-Muslim countries

             Is there a need?

• Fasting growing immigrant population

• Belief in will of God

• Acceptance that insurance is not allowed

• First and second generations are

 purchasing insurance

• Increased availability of information

• Growth of Islamic banking sector

     Potential for Takaful in the UK

• Established Islamic financial services providers

• Potential consumers are first and second generation

• Greater disposable income

• Growing awareness and demand for Takaful

• Regulatory openness

• Ethical positioning

• HSBC Property Takaful already launched

• British Islamic Insurance Holdings

• Lloyds syndicate

          Challenges in the UK

• Dispersed population

• Capital requirements

• Investment restrictions

• First to market

• Credibility

• Technical expertise

• Competitive pricing and service

 Possibilities for Takaful in the UK

• Affinity marketing of statutory products by cooperative and

 mutual insurers.

• Takaful window by existing conventional insurers

  Affinity Marketing by Cooperative and

                     Mutual Insurers

“… It is well known that in most non-Islamic countries there

 are cooperative and mutual insurance companies. There is

 no harm from the Shari`ah point of view to participate in

 these services. So, it is unlawful for a Muslim living in a

 country where there is such a cooperative insurance

 company to make an agreement with a commercial

 insurance company…..”

 Ruling by the European Council of Fatwa and Research

 Ruling by the European Council of Fatwa

                  and Research

Muslims are directed to purchase their statutory

insurance requirements from the cooperative and

mutual insurer if there is no Takaful company in the

country

    The case of Folksam - Sweden

• 350,000 Muslim population

• Fastest growing immigrant community

• Collaboration with Swedish Muslim Council

• Marketing of Folksam products through

 representatives of Council in communities and

 mosques

• Insurance committee has been established

               Takaful Window

• Separate division

• Shariah board

• Islamic compliant investments

• Surplus distribution

• Policy wording

                      Conclusion

There is a growing awareness and demand for Islamic

financial instruments including insurance in non-Muslim

countries. There is a great potential for established

financial institutes to set up Takaful windows. In particular

the Shari’ah ruling by the European council presents an

opportunity for cooperative and mutual insurers to be the

first to penetrate this niche market with minimal costs.

   Thank you

www.icmif.org/takaful