CEO, Takaful Pakistan Limited

Apr 14 - 20, 2008

Ever since its inception, Takaful Pakistan Limited has been striving to create country-wide awareness of the fair and equitable system of Islamic insurance called TAKAFUL that is one of the fastest growing sectors not just in the Islamic world but also on a global basis.

Set up as a joint venture of prestigious institutions, both local and foreign, Takaful Pakistan Ltd. has quickly moved to fill up the vacuum by creating country-wide awareness and providing Shariah compliant Islamic insurance products to the general public that are not only at par with the commonly used insurance policies but in many ways are even more comprehensive in the scope and nature of coverage. Besides, there is an attractive provision of even a return of the balance amount paid by the Participants (Policy holders) along with even the investment income earned thereon. Such a unique advantage is not offered by the conventional insurance companies.

Starting-off in the late seventies simultaneously from Sudan and Bahrain, the system has proved commercially so viable that there are now over 107 Takaful companies operating in more than 35 countries of the world. Yet the appetite for this form of business is so lucrative that even the non-Muslim investors and multi-national business institutions have been attracted to invest and benefit from this mushroom growth. For instance Munich Re, the world's leading reinsurance company established for over a hundred years, has set up a ReTakaful subsidiary in Kuala Lumpur. Similarly Hannover Re, Swiss Re, Tokio Marine, the world's leading insurance and reinsurance giants have set up ReTakaful operations in regions like Bahrain and Singapore. Takaful companies are also already operational in Russia, South Africa and even Luxembourg whereas new Takaful companies are also being envisaged in U.K., India, China, U.S.A. and Canada by sponsors and investors interested to tap these potential markets.

One important aspect of this system is that even non-Muslims are increasingly opting for this form of insurance; so much so that almost 40% of the business volumes in Sri Lanka and Malaysia are derived from non-Muslims. Obviously theirs is not a faith-driven decision, rather it is purely based on the commercial benefits and the extensive insurance protection afforded that spurs them to prefer this form of insurance for their business and personal needs rather than going for the conventional form of insurance.

Pakistan is among those few countries where the per capita spending on insurance is extremely low. This penetration of insurance is around 0.3% of our GDP compared to that of around 4% for India, 8% for Malaysia and upward of 14% in case of the developed economies of Japan, U.S. and Europe.

Apart from the affordability issue, a significant reason for such low penetration is lack of awareness of the availability of insurance as a viable support arm for all commercial activities and its important role in bringing economic stability and benefiting society at large.

Another reason is the general perception (and rightly so!) that insurance, as is being practiced by blindly following the West, is un-Islamic and hence "Haraam". This factor is even more pronounced in the case of "Life" Assurance.

Due to the above factors, people generally tend to opt for insurance coverage only where it is either mandatory by law, as in the case of Motor Third Party Insurance, or when it is one of the requirements of the lending institutions like banks and DFIs. Even in those cases, it tends to be regarded as a necessary evil and the ensuing "additional" cost involved is invariably resented.

Thus, a considerable vacuum exists in the country that can only be filled once the generally negative perception about insurance is removed and people are made aware of the benefits of insurance to the national economy in general and to their own personal wellbeing in particular. Unfortunately, not much work has been done by the contemporary "conventional" insurance professionals in this direction where probably short-term vested interests take precedence. On the other hand, several "malpractices" have been introduced and encouraged over time that have resulted in virtually obliterating the distinction between what is ethical and what is not. Inevitably, it is not the common man but large corporate "influentials" who benefit from inflated claims, kick-backs for placement of their insurances, etc. ? all at the cost of the common man who bears the brunt by a subsequent increase in insurance rates at renewals.

The above dismal scenario can be rectified by the introduction in the country of the pristine concept of "Takaful" as a viable Shariah-compliant alternative to the conventional insurance. If properly introduced by professionals who are not only competent but also fully committed to the cause, there is no reason why this relatively new concept will not achieve wide spread acceptability. In fact, Takaful insurance would be ideally positioned to infiltrate far and wide and create awareness and demand for insurance products that not only are tailored to the specific needs of the businesses and personal lines" segments but are also in full compliance with the Shariah. Even now, there are currently a significant number of insurance consumers who are obtaining insurance coverage from the conventional insurance companies simply because they have no choice of an Islamic alternative. Once such option is there, and provided it is competitive and equally comprehensive, they will willingly switch over. A parallel in this matter can be drawn from the phenomenal success achieved by the recently established Islamic banks in the country. Once people's confidence was built up looking at their respective Shariah Boards, innovative riba-free Islamic products based on Ijarah, Musharikah, Murabaha and the like, they lost no time in switching over their deposits and their financial transactions through these banks.

Takaful likewise, can build up public's confidence and once that is achieved, people will voluntarily opt for the various Takaful options in their individual as well as collective interests. Society as a whole will benefit as huge funds currently blocked up to hedge against fortuitous losses, will be willingly released and utilised in the growth of various businesses. Needless to mention, Takaful concept discourages spread of malpractices and does have a viable and unique alternative in the form of "Surplus sharing" as described earlier.

It is hoped that the government of the Islamic Republic of Pakistan shall seriously consider fixing a dead line, say, of 14th August 2012 by which date all the banking as well as insurance companies should be required to fully convert themselves into Shariah compliant Islamic mode of business. When a new bank and a new Takaful company can be raised from scratch to full fledged country-wide operations within a period of twelve months, there is no reason why this dead line could not be met by the existing conventional insurance and banking sector who have all the infrastructure and manpower available but lack the will and the incentive to do so.