Talking takaful

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Takaful - or Shariah compliant cooperative insurance - has been a hot topic in the Middle East for some time, but as with conventional insurance, the local penetration rate remains low. However, studies have predicted that takaful, having already been popular in Far East Muslim countries like Malaysia, and in Iran, will see rapid growth in this region in the coming years.

Qatar Financial Centre, which has been particularly successful in attracting insurance firms to set up headquarters in its jurisdiction, points out the insurance penetration rate in the GCC increased from 0.57% in 2001 to 0.79% in 2005, although this is still far below the world average of 7.52%.

Standard & Poor's, which has rated more takaful companies than any other ratings agency, stated in a recent report: "Over time, if the world average insurance premium of US$550 per capita is achieved and applied to the Gulf states, the GCC insurance market has a potential size of $20 billion (currently $4.6 billion).

"Taking as an example Malaysia, where the takaful market is expected to contribute 20% to the overall market in the medium term, the GCC takaful market has the potential to reach $4 billion at the current level of development (currently $170 million)."

In a recent report, Moody's estimates that the global takaful market will be worth $7.5 bn in contributions by 2015, while another report by HSBC estimates that the figure will be nearer $14 bn.

Parvaiz Siddiq, general manager of Salama, a UAE-based takaful firm, predicts that the global takaful industry will be worth $10 bn by 2015 - a significant increase on last year's figure of $1.1 bn.

Salama has takaful operations in the UAE, Saudi Arabia, Egypt, Algeria and Senegal, in addition to a retakaful operation in Tunisia.

"We are very upbeat about the takaful market - there is a lot of potential," says Siddiq. "Slowly, takaful is making inroads into the corporate sector, and Saudi Arabia is going to be one of the biggest markets." In common with other takaful providers, Salama has to decide whether to develop brand new products for takaful, which could be costly and time-consuming, or whether to adapt existing products from the conventional insurance industry. "It is possible to use the template of conventional products and modify them to ensure Shariah compliance. Do we need to develop totally separate takaful products?" asks Siddiq. "Why reinvent the wheel?"

On the other hand, he recognizes the need for innovation and new takaful products developed with the local market in mind. Salama is currently in the process of launching unit-linked takaful products developed in-house, which are supported by high-tech IT systems.

One conventional insurer that is set to make the move into takaful is Axa Insurance (Gulf). The insurer will first develop a conventional life offering, before launching takaful services. It is currently considering whether to acquire an existing takaful firm, or to develop its own products and services from scratch.

Andrea Rossi, CEO, Axa Insurance Gulf and Middle East region, says: "There's a big new market coming up in life and wealth management, and that's what we're going to move into. We're going to compliment our existing property and casualty portfolio with new products in life: conventional term life and savings products.

"But of course when you're talking about that you also need to start thinking about people who do not accept the conventional way of insurance and therefore you need to start looking at takaful."

Rossi admits the takaful market is small at present, but sees huge growth potential. "It's about 10-15% of the overall life market which already is a smaller market of the general insurance market here in the Gulf," he says. "The life market represents 20% of the overall insurance market here in the Gulf, maybe even less."

Axa is well-positioned to tap into demand for takaful from the GCC and Southeast Asia. "We are a global company and we are present in all these markets, so it make sense for us to get into takaful, which is going to grow like any other segment," says Rossi. "It's a new segment so we'll have growth of 30, 40, 50% a year, but eventually it could be worth $10-15 billion in premiums on a worldwide basis within the next five to six years.

"We believe with our expertise in life, property and casualty, and being one of the world's leading organisations, this is something we can bring additional value to. I believe that the Gulf is a strong basis for our growth."

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