Alhuda CIBE - The World of Takaful by Dr. S. J Malaikah

The World of Takaful
Current Achievements
&
Future Outlook
By Dr. S.J.Malaikah
Chairman BEST Re
Asian Conference on Takaful (Insurance)
InterContinentaI Singapore, 29-30 March, 2006
Introduction
Takaful is the brand name for the
Islamic alternative to conventional
insurance.
Basic Principles
Very similar in nature to co-operative

and mutual insurance,
it endorses their basic principles of
solidarity and profit-sharing
whilst retaining a capitalistic base
(shareholders) and above all
Ensuring compliance with the Islamic
Shariah rules and principles
Shariah Compliance
Shariah compliance is an essential
element in Takaful insurance .
It is ensured through a Shariah
Supervisory/ Advisory Board at the
level of each Takaful company.
The role of the Shariah Board is vital
in meeting the specific demand of a
public who would not insure
otherwise.
Takaful Pioneers
Takaful started some 27 years ago

in the Middle East with the
launching of two companies:
The Islamic Arab Insurance Co. (IAIC)
in the UAE and
The Islamic Insurance Co. of Sudan
But it took some time for the

movement to take shape.
Takaful Pioneers
Later in 1984, Malaysia played a
pioneering role in setting the first
Legal framework specific to Takaful
(Takaful Act).
This was instrumental in the
successful launching of the Takaful
movement in Malaysia and in other
countries of South East Asia.
Other Islamic/ Takaful

Legislations
Other markets such as the Sudan
and Iran have Islamic regulatory
environments and became
naturally Takaful markets.
In the Gulf countries specific
Takaful legislations are coming
through in Bahrain and in Saudi
Arabia
Takaful Today
From a handful of operators two

decades ago the Takaful
movement has blossomed into a
fast growing phenomenon in many
Muslim countries with very
promising prospects in other
countries with a large Muslim
community.
10
Takaful drivers
This movement is driven by

a strong demand from a public who
would not insure otherwise (because
of religious beliefs); and
The successful development of Islamic
banking institutions providing capital
and Islamic financial instruments for
asset management and investment.
11
Takaful Drivers
Islamic banks and financial institutions

play a strategic and important role in
the distribution of Takaful products
(especially Life Takaful Products).
Just as Bancassurance played an
important role in the distribution of
personal lines insurance products
Bancatakaful is an important driver for
Takaful.
12
Takaful Operators
The number of Takaful operators
worldwide is now estimated at:
60 Takaful companies
3 Retakaful companies
This number may reach 90 + if socalled Takaful windows are to be
included.
13
Takaful Premium
Takaful is one of the fastest
growing segments in insurance (at
around 20% pa. on average)
World Takaful contributions are
conservatively estimated at around
US$ 3billions, of which:
60% General Takaful

40% Family Takaful
14
Takaful Geographical Spread

South& East Asia :
Middle East :
Africa:
Europe, USA & Others:
56%
36%
7%
1%
15
Main Markets
Malaysia
Indonesia
Iran
GCC countries
Other Arab countries
Other Asia Pacific
16
General Vs Family Takaful
In the Far east region Family Takaful was

and still is the driver of the segment in
terms of contributions and growth;
Whereas General Takaful leads the way
in the Middle east markets.
This trend is slowly changing with the
advent of new highly capitalised Takaful
players in the GCC determined to
develop Family Takaful products.
17
Personal Lines Vs. Corporate

Accounts
Current Takaful portfolios are in
most cases geared towards
personal lines with the largest
percentage derived from Motor
business.
Diversification towards Corporate
accounts is a big challenge ahead
18
The Challenges ahead
Despite a remarkable
breakthrough and a dynamic and
sustained growth, there are
challenges facing the Takaful
industry.
19
The business model dilemma
The existence of two business models:
Mudharabah (Profit & Loss sharing)

Wakala (agency contract with a performance fee
element to replace surplus sharing)
And the introduction more recently of the Waqf

model
Could create an uneven / unfair business

environment to operate
Need to reach a consensus internationally on a
common and standard Takaful business model
20
Takaful Best Practices
Regional Takaful institutions and

organisations need to come together
internationally in order to promote and
standardise best practices within the
industry:
Islamic Financial Services Board (IFSB)

ASEAN Takaful Group (ATG)
International Takaful Association (ITA)
Accounting and Auditing Organization of
Islamic Financial institutions (AAOIFI)
21
Retakaful Solutions
Takaful operators are heavily
reliant on reinsurance.
There is a high need for ReTakaful
solutions
22
Retakaful Solutions
There are currently 3 Retakaful

operators in the market providing
services to primary Takafuls:
Asean Retakaful International (L) Ltd.
(Malaysia)
BEST Re (Tunisia)
Takaful Re (U.A.E.)
23
Retakaful Solutions
Need to create a mechanism for an
active role of Retakaful in the
Islamic financial system;
Need to promote a strong
Retakaful operator capable of
playing a leading role in providing
first class security, capacity and
value-added services.
24
Retakaful Solutions
The idea of an International
Retakaful Syndicate/ Consortium
was launched recently in Langkawi
(Malaysia) at the 2nd International
Symposium on Takaful.
Need to promote a Retakaful hub
capable of hosting the maximum
number of Retakaful offers.
25
Future Outlook
Despite the remarkable growth

rate recorded by the Takaful
industry, penetration is still far
below the enormous market
potential offered by the Muslim
community worldwide (23% of the
total world population).
26
Growth Outlook
World Muslim population is estimated
at 1.5 billions, of which around 97%
are based in Asia and Africa.
A two-digit growth in the range of
15% to 20% can be reasonably
sustained for at least the next 10
years in the existing markets (Far
and Middle East).
27
New Takaful Frontiers

Markets like Europe, North and Latin
America, Central Asia, Australia
where large Muslim communities
live are huge untapped reservoirs;
The recent opening towards Islamic
windows in the banking sector in
Europe is likely to be followed by
Takaful windows initiatives.
28
Takaful at Lloyds
The recent opening at Lloyds of a

Takaful dedicated syndicate
(Creechurch) is a clear indication
that the segment is promising.
29
Takaful, Cooperatives & Mutuals
International institutions such as the UKbased International Co-operative and

Mutual Insurance Federation (ICMIF)
recognised the Takaful movement as
part of the global cooperative &
mutualistic paradigm.
ICMIF is firmly committed to supporting
the development of Takaful schemes in
Muslim and Non-Muslim countries.
30
Takaful, Cooperatives & Mutuals

Folksam, an ICMIF member, is
actively building affinity with the
Muslim community in Sweden by
offering Takaful schemes and
products.
In France, Some mutuals are
showing interest in Takaful
products.
31
Takaful Products to Non-Muslims

Takaful Products are not exclusive
to Muslims.
Competitively priced and sold
through the right channel it could
attract any consumer irrespective
of their origin or faith.
32
Conclusions
Despite the challenges facing this
new industry, exciting times are
ahead once the latent potential is
unleashed.
The success of Takaful largely
depends on that of Islamic
Financial institutions on a global
basis.
33
Conclusions
There is a need for

More strategic alliances and synergy
between Islamic Financial institutions;
More cooperation between Islamic
operators at an international level
A better legal and regulatory
environment
Better competencies in Islamic Finance.
34

Alhuda CIBE - The World of Takaful by Dr. S. J Malaikah

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The World of Takaful

InterContinentaI Singapore, 29-30 March, 2006

Asian Conference on Takaful (Insurance)

InterContinentaI Singapore, 29-30 March, 2006

Asian Conference on Takaful (Insurance)

InterContinentaI Singapore, 29-30 March, 2006

Asian Conference on Takaful (Insurance)

InterContinentaI Singapore, 29-30 March, 2006

Very similar in nature to co-operative

Asian Conference on Takaful (Insurance)

InterContinentaI Singapore, 29-30 March, 2006

Asian Conference on Takaful (Insurance)

InterContinentaI Singapore, 29-30 March, 2006

Takaful started some 27 years ago

But it took some time for the

Asian Conference on Takaful (Insurance)

InterContinentaI Singapore, 29-30 March, 2006

Asian Conference on Takaful (Insurance)

InterContinentaI Singapore, 29-30 March, 2006

Other Islamic/ Takaful

Asian Conference on Takaful (Insurance)

InterContinentaI Singapore, 29-30 March, 2006

From a handful of operators two

Asian Conference on Takaful (Insurance)

InterContinentaI Singapore, 29-30 March, 2006

This movement is driven by

Asian Conference on Takaful (Insurance)

InterContinentaI Singapore, 29-30 March, 2006

Islamic banks and financial institutions

Asian Conference on Takaful (Insurance)

InterContinentaI Singapore, 29-30 March, 2006

Asian Conference on Takaful (Insurance)

InterContinentaI Singapore, 29-30 March, 2006

60% General Takaful

InterContinentaI Singapore, 29-30 March, 2006

Takaful Geographical Spread

Asian Conference on Takaful (Insurance)

InterContinentaI Singapore, 29-30 March, 2006

Asian Conference on Takaful (Insurance)

InterContinentaI Singapore, 29-30 March, 2006

General Vs Family Takaful

In the Far east region Family Takaful was

Asian Conference on Takaful (Insurance)

InterContinentaI Singapore, 29-30 March, 2006

Personal Lines Vs. Corporate

Asian Conference on Takaful (Insurance)

InterContinentaI Singapore, 29-30 March, 2006

The Challenges ahead

Asian Conference on Takaful (Insurance)

InterContinentaI Singapore, 29-30 March, 2006

The business model dilemma

The existence of two business models:

Mudharabah (Profit & Loss sharing)

And the introduction more recently of the Waqf

Could create an uneven / unfair business

Asian Conference on Takaful (Insurance)

InterContinentaI Singapore, 29-30 March, 2006

Takaful Best Practices

Regional Takaful institutions and

Islamic Financial Services Board (IFSB)

Asian Conference on Takaful (Insurance)

InterContinentaI Singapore, 29-30 March, 2006

Asian Conference on Takaful (Insurance)

InterContinentaI Singapore, 29-30 March, 2006