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Takaful industry becoming greater in the world

Shariah-compliant framework likely to be practice in Britain’s transactions next year

The global Takaful industry is expected to experience strong growth driven by demand from Islamic countries according to speakers at World Takaful Conference, organized recently. Gulf Cooperation Council (GCC) countries including the UAE has been major growth markets for Takaful industry, countries in South East Asia, Middle East and North Africa are fast emerging as new growth markets, while data and indicators confirm the growing role of Takaful insurance in the insurance industry in the UAE.

Takaful insurance contributions accounted for about 10 percent of the gross written premiums in the market in 2017, compared to 9.4 percent with a value of 3.7 billion dirhams in 2016. The Takaful sector contributed about 6 percent of the total investments of the UAE insurance sector in 2017, compared to 5.8 percent with a value of Dh3 billion in 2016.

The Gulf is one of the most important areas to influence the growth, trends and prospects of global Islamic insurance. The premiums of the Islamic insurance companies in the region amounted to about Dh11 billion with almost 50 per cent of the global premiums in 2016.

The development of the legislative and legal basis of the organization of the insurance sector has certainly contributed to strengthening the region’s leadership role in creating integration. It is also a key factor in pushing the global Takaful sector into growth and development.

Islamic insurance industry in the GCC is expected to gain in terms of strong underwriting profitability. The regulatory changes in some countries have pushed up insurance prices, improving their profitability in 2018.

The improved pricing, particularly in motor and medical cover has given the much needed push to the underwriting profitability of the region’s insurers who have been facing underwriting losses despite double-digit premium growth.

At an estimated $11.5 billion (Dh42.24 billion), the region’s Takaful market has grown at a compounded annual growth rate of 18 percent from 2012 and accounts for nearly 44 percent of the GCC insurance sector.

Preference towards Shariah-compliant financial solutions and an expanding non-life market are the factors aiding growth.

Takaful, in its essence, conveys the sense of a collaborative, caring and supportive society. It reflects a culture of positive social relations, translated into rules and regulations to maximize the benefits for all members of the community.

The opportunities made available by the takaful sector pave the way for a new phase of socio-economic prosperity. Takaful sector presents strong growth opportunities across key Islamic countries. Experts said the industry should embrace innovation and technology to leverage growth opportunities. Innovation in the sector will be driven by InsurTech and Islamic FinTech.


Takaful in Britain

According to recent reports, London’s draft standards for transaction of Islamic commercial insurance are seeking Shariah scholars’ approval this year for roll-out next year, the Islamic Insurance Association of London (IIAL) quoted as saying to Salaam Gateway.

The industry body, which counts Lloyd’s of London as a founding member, has sought Shariah and legal opinion for the standards framework it has developed with London market associations.

The standards are not enforceable but IIAL wants them to be the “best practice” for London’s insurance industry, executive committee member Dave Matcham told Salaam Gateway on the sidelines of a takaful industry event in Dubai. “We were advised by the Islamic [finance] community that we need some kind of standard to base our negotiations,” said Matcham, who is also chief executive of the International Underwriting Association of London.

The planned roll-out of IIAL’s takaful standards will more or less coincide with the UK’s departure from the European Union on March 29 next year.

As part of UK’s post-EU trade and business positions, the British government has set Islamic insurance “high on its agenda”, Jon Guy, IIAL secretary-general told Salaam Gateway.

Matcham confirmed that he will be a member of a new task force that is being formed for the insurance industry to work with the government on new business opportunities post-Brexit.

The UK’s insurance sector would need to maintain a spread of business, said Matcham, particularly as most of their EU business will move to subsidiaries in the single market.

There are up to twelve insurers offering some form of takaful in the UK, according to Matcham.

IIAL’s takaful standards could lead to what Matcham describes as “a positive determination” for insurers to take on more takaful in the UK market, which holds only “under 5 million British pounds” in premiums for both Shariah-compliant commercial and personal lines of business, according to IIAL estimates.

The UK insurance sector has had precedence for a standard to be developed and adopted by the industry.

The UK’s takaful sector is woefully small compared to London’s insurance business. The capital city’s gross premium income is an estimated 56 billion pounds ($79.3 billion), which is the aggregate of two main segments.

Lloyd’s of London reported gross written premiums of 33.6 billion pounds in 2017. As an insurance market, Lloyd’s includes more than 50 insurance companies, over 200 registered brokers and over 4,000 local cover holders globally, according to the company’s website.

Overall premium total for the London company market, which excludes Lloyd’s, was 22.725 billion pounds in 2016, according to latest available data from the International Underwriting Association of London. This includes 6.691 billion pounds written in other locations but overseen by London operations.

Takaful, according to Matcham, is the “missing link” in the UK’s Islamic finance industry that is dominated by five licensed standalone Shariah-compliant banks—only one of which is retail-focused—and around twenty others that offer Islamic financial products and services.

Financial lobby group TheCityUK estimates the banks’ net assets as more than $5 billion in 2016.

In a 2016 survey conducted by IIAL, which was formed earlier in the same year to support the use of Islamic insurance in UK and promote the industry abroad, the top three reasons respondents said would stop them from buying takaful were price, the broker or intermediary not offering the option, and available capacity.

The survey was conducted among 500 Islamic insurance, reinsurance and risk experts in London as well as key Islamic jurisdictions Indonesia, Labuan, Malaysia, Pakistan, Syria and United Arab Emirates.

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