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Islamic Takaful industry: failures and opportunities

The general Takaful operators in the early years failed to adopt a joint approach in promoting the cause of Takaful as a Shariah-compliant risk-coverage mechanism. Overlooking the desired Islamic spirit of transparency in dealings, they harshly competed. This created an unethical image of the Takaful industry.

As regard to human resource factor generally, opportunism has been the deciding factor for individuals with conventional insurance background, to join newly-formed Takaful operators at senior/middle management levels.

The required incitement to acknowledge the Shariah requirements and to obediently contribute for the cause of Takaful on strong and careful commercial practices within the Shariah framework has been missing. The fundamental of Islamic principles, are lacking on the part of general Takaful operators to basically incite attraction for devoted Muslims to opt for Takaful as a system to meet their risk-protection needs in a Shariah-compliant manner.

Prior, Motor Takaful has been the dominating class (being well over 50 percent as against conventional around 20 percent). There has not been any of the entire business, important change in the said trend, after Windows. All classes combined loss ratio, has come down to a commercially viable level. The expenses outpacing 40 percent against Wakala Fee ranging from 35-40 percent remained a source of matter for the general takaful industry.

The cause and sprit of Takaful in Takaful Rules 2012 (the Rules) have not been sufficiently addressed to up-held the writ of the Shariah. The Rules present Takaful as a product rather a true reflection of a legal frame work featuring supremacy of Shariah, distinctly distinguishing Takaful from conventional insurance.

The non existence of a Shariah Advisory Board, leaving Shariah Advisor of each company at the helm of Shariah matters of respective companies, which understandably create confusion chaos, thereby generating/promoting corrupt practices.

In 2016, the Securities and Exchange Commission of Pakistan (SECP) specifically mandated through an amendment, for regulating and facilitating the growth of Shariah-compliant financial products.

Share of Shariah Compliant assets of NBFI industry has steadily grown from 12 percent to 35 percent in seven years, whereas mutual funds have sharply risen from 9 percent (2010) to 43 percent (2017).

A new concept of Shariah Compliant Company has been introduced through the Companies Act 2017. Under the enabling provision of the Companies Act, 2017, a whole Shariah Governance Framework is being drafted.

Capacity in non-motor Takaful is a serious issue as ‘A’ rated Retakaful Operators are few and highly demanding. Underdeveloped Bond and Sukuk markets, which are yet to be focused for opportunities these hold.

The Islamic insurance, or Takaful, industry stands somehow in the shadow of the Islamic banking sector, partly because it doesn’t have such a prevalence even in Muslim countries, and also because its business strategies and product offerings still have a lot to overtake.


Presently Malaysia, Saudi Arabia and the nations of the Gulf Cooperation Council (GCC) are the countries where Takaful has the greatest prevalence. As of late, its popularity has grown in other countries such as Indonesia, Jordan, Pakistan and Nigeria.

Big multinationals from the conventional finance sector are showing increased interest in Takaful, among them many of the world’s largest insurers such as Allianz, AXA, Prudential, Aviva, Aegas and AIG, which are expanding in the takaful sector through takeovers or by joint ventures or by opening Takaful windows in relevant countries.

In the GCC, Takaful has grown in high double digits in recent years, according to the Global Takaful Report 2017, released at the World Takaful Conference held in April in Dubai. In detail, Takaful growth in the GCC stood at a compounded annual growth rate of 18 percent from 2012 to 2015, while Southeast Asia reported a negative growth of 4 percent due to currency depreciation and Africa grew 19 percent in the same period.

General Takaful provides protection to participants against losses arising from perils such as accident, fire, flood, liability and burglary. It makes about 83 percent of the global market share of Takaful, while family Takaful, which is designed to cover health and mortgage-related risks, occupies the remaining 17 percent

As per global market share, the GCC remains the dominant region for Takaful with a global market share of 77 percent, followed by Southeast Asia at 15 percent, while Africa and the Levant region, countries such as Pakistan or Bangladesh, as well as a few Takaful operators in Western countries, together occupy the remaining market share.

Assets under management of Takaful companies, which are allocated to Shariah-compliant investments only, were around 35 billion at the end of 2015, and they are expected to grow to over 50 billion by 2020, according to recent report. There are, as mentioned, also a number of challenges for the takaful market in general.

Those are tighter regulations across all jurisdictions, particularly in the GCC and Malaysia, as regulators increase their focus on consumer protection and the implementation of risk-based capital, the report says.

Takaful companies also are pressured to increase profitability of their operations amid increasing competition in the market space. Currently, many Takaful operators are burning capital by failing to implement processes for cost efficiency and productivity and improve operational, sales and marketing strategies by embracing new technologies and tap into new markets to increase revenue.

The existing portfolio of general and family Takaful needs to be extended towards investment-linked Takaful, retirement Takaful, travel Takaful, community Takaful, legal Takaful, products for certain client target groups such as high-net worth individuals and products for special risk groups, such as sports persons or heavy workers, as well as new variants for corporate insurances for executives, start-ups, entrepreneurs and small and medium enterprises.

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