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THE “TAKAFUL” INDUSTRY: NEW STRATEGIES NEEDED TO INCREASE MARGINS

The Arabic word “takaful” can be translated as social insurance. A July 2017 report “Market Trends in Family and General Takaful”by Milliman revealed that gross written premiums (GWPs) or “contributions” in 2015 reached $14.9 billion of which $12.3 billion (83%) were in general takaful and $2.6 billion (17%) in family takaful. Over the three-year period 2012-2015, total contributions grew ata compound annual growth rate of 14 percent. In the GCC and Africa the growth rates over the same period were 18% and 19% respectively. Other regions grew at around 7% while South East Asia markets experienced a decline of -4%. Overall, in terms of contributions, the GCC had the largest market share (88%) in 2015 with the largest GCC market, Saudi Arabia, accounting for $9.7 billion, predominantly in general insurance premiums and only limited life insurance.

Though still at a relatively nascent stage of development, the total volume of global takaful business is forecasted to reach $52.5 billion by 2020 and the industry has massive potential to shape the course of the entire Islamic finance ecosystem. However, a single minded focus on acquiring market share using aggressive growth strategies that are undifferentiated and price based, often squeezing out under performers, has led to lower profits making it imperative to devise new strategies to increase bottom line and underwriting profit margins.

These and other issues were addressed by more than 300 senior executives from the global takaful industry at the 13th edition of The World Takaful Conference (WTC) which took place on April 9 at the Dusit Thani Hotel in Dubaiunder the theme of “Differentiation, Innovation & Profitable Growth.

In his inaugural address,H.E. Ebrahim Obaid Al-Zaabi, Director General, Insurance Authority (IA) stressed the need to optimise takaful’s contribution to the economic growth of the region. He noted that takaful insurance contributions accounted for about 10% of the gross written premiums in the UAE market in 2017, compared to 9.4 % with a value of AED 3.7 billion (just over $1 billion) in 2016. The takaful sector also contributed almost 6% of the total investments of the insurance sector in 2017, compared to 5.8 % with a value of AED 3 billion ($821 million) in 2016. “The Gulf region is one of the most important areas to influence the growth, trends and prospects of global Islamic insurance” he said.

In his keynote address, Abdulla Mohammed Al Awar, the CEO of the Dubai Islamic Economy Development Centre (DIEDC), said takaful, in its essence, conveyed the sense of a collaborative, caring and supportive society. It reflected a culture of positive social relations translated into rules and regulations to maximize the benefits for all members of the community. The opportunities being made available by the takaful sector, he said, were paving the way for a new phase of socioeconomic prosperity. The world today needed fast-growing and low risk sectors for investment. Individuals and corporations alike required a sense of confidence in order to invest. Like other Islamic finance instruments, takaful provided an alternative to the fast-growth model that was prevalent in the conventional financial sector before 2008, but with- out the outcomes that led to the subsequent economic crisis.”

Salmaan Jaffery, the chief business development officer at the Dubai International Financial Centre (DIFC), noted that Islamic finance assets were expected to grow to $3.8 trillion by 2022. The Islamic finance sector, he said, remained a key focus area for DIFC in line with Dubai’s vision to be the world’s capital of the Islamic economy. DIFC, he noted, was home to more than 108 insurance related entities including six of the world’s top ten insurance firms.

An interesting highlight at the conference was the keynote address by Dave Matcham, CEO of the International Underwriting Association (IUA) in London who spoke about London’s innovative approach to Islamic insurance “The London market has a long history of providing solutions for the MENA region” he said. “The London market is responsible for $90 billion reinsurance business, via over 350 firms and with business derived from over 200 countries. The market is bigger than all its nearest rivals combined – Zurich, Bermuda and Singapore – and has over 60% of the global aviation market share, 52% of the energy markets, and over one third of the marine market.”