The Growth Potential Of Islamic Insurance Takaful in Arab Market

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The Growth Potantial Of Islamic Insurance takaful in Arab Market

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The Growth Potential Of Islamic Insurance Takaful in Arab Market

  1. 1. The growth potential for Islamic Insurance (takaful) in the Arab Market A.Rahman Tolefat Head, Licensing and Information Manama, 21 st March 2006
  2. 2. MENA REGIO IS A SIGNIFICANT LARGE MARKET WITH HIGHER GROWTH TREND <ul><li>North Africa </li></ul><ul><ul><li>Egypt </li></ul></ul><ul><ul><li>Algeria </li></ul></ul><ul><ul><li>Tunisia </li></ul></ul><ul><ul><li>Morocco </li></ul></ul><ul><li>GCC countries </li></ul><ul><ul><li>Bahrain </li></ul></ul><ul><ul><li>UAE </li></ul></ul><ul><ul><li>Kuwait </li></ul></ul><ul><ul><li>Oman </li></ul></ul><ul><ul><li>Qatar </li></ul></ul><ul><ul><li>Kingdom of Saudi Arabia </li></ul></ul><ul><li>Other Middle Eastern countries </li></ul><ul><ul><li>Lebanon </li></ul></ul><ul><ul><li>Syria </li></ul></ul><ul><ul><li>Jordan </li></ul></ul><ul><ul><li>Iran </li></ul></ul><ul><ul><li>Iraq </li></ul></ul>GDP GROWTH OF MORE THAN 5% in 2004 SECOND FASTEST GROWING REGION AFTER CHINA
  3. 3. THE INSURANCE MARKET IN THE REGION IS EXPECTED TO GROW SIGNFICANTLY IN THE NEAR-MEDIUM TERM Growth expected in the premium Revenue Pool in the MENA region US $ million 1,700 6,000 2000 2007 Source: McKinsey Team Analysis, Swiss Re, WMI <ul><li>Attractive opportunities for new international players </li></ul>average growth of 36% per annum
  4. 4. <ul><li>what Takaful? </li></ul><ul><ul><li>Derive from the verb Khafel </li></ul></ul><ul><ul><li>Mean in Arabic mutually joint guarantees or Guarantees each other </li></ul></ul>
  5. 5. <ul><ul><li>Pact among group of participants who agree to jointly guarantee each other in case of any member suffer from a loss or misfortune in the future. </li></ul></ul>
  6. 6. Flow of contributions Policyholders funds Contributions (premiums) base on donation Pay claims, reinsurance & expenses Investments (Mudarabah) Surplus Shareholders funds Wakhala fees 70% 30% Reserves Dividends
  7. 7. Obligation of participants Shareholders fund Participants fund Insurance operation Deficit Option(1): Qarad Hassan Investment Participants Option (2):Pay additional premiums
  8. 8. Issues Specific to Takaful Conventional <ul><ul><li>An exchange contract (sale and purchase) between insurer and insured </li></ul></ul><ul><ul><li>A combination of donation and Agency or profit sharing contract. </li></ul></ul><ul><ul><li>Premiums owned by policyholders </li></ul></ul><ul><ul><li>Premiums owned by insurance company </li></ul></ul>Takaful Premiums Contract Policyholders <ul><ul><li>Policyholders pay premiums to the insurer. </li></ul></ul><ul><ul><li>Participants mutually expected to share the surplus or pay the deficit </li></ul></ul>
  9. 9. Issues Specific to Takaful Conventional <ul><ul><li>Insurer is liable to pay the insurance benefits as promised from its assets. </li></ul></ul><ul><ul><li>Takaful operator act an agent. If there is a deficit in takaful funds, the operator expected to provide interest free loan </li></ul></ul>Takaful <ul><ul><li>No restriction apart those imposed for prudential reasons. </li></ul></ul><ul><ul><li>Assets must be invested in shari’ah compliance instruments </li></ul></ul>Insurer Investment
  10. 10. Takaful companies 16 Sudan 1 Qatar 5 Iran 60 Total 8 other 4 UAE 4 Kuwait 8 Malaysia 14 Bahrain Number Country
  11. 11. Geographical Distribution of Takaful contributions 100 2,114 Total 2 52 Other 20 425 Other Asia Pacific Countries 13 280 Malaysia 37 777 Iran 28 580 Arab Countries Market share (%) GPW (US$ Million)
  12. 12. Arab Countries Vs Malaysia Market
  13. 13. Growth Potential for Takaful GCC & MENA Malaysia Iran 15% - 20% 30% 10% Why?
  14. 14. Family Takaful would grow at faster rate of 20% p.a. than general takaful of 8% p.a. Family Vs General growth? Family General 8% 20%
  15. 15. Enhancement of Islamic banking and finance huge infrastructure project (multi billion projects): -Durrat al-Bahrain. -Qatar energy city. -Financial Harbor. Growth Factors for General takaful?
  16. 16. General Takaful Enhancement of Islamic banking and finance Market share of Islamic banks in customer finance: -Islamic Mortgages -Automobiles - Personal financing.
  17. 17. Growth Factors for Family takaful? Factors Cost of education Compulsory insurance Joint family system Social security benefit Young populations
  18. 18. Growth Factors for Family Takaful Demographic Young and more educated population - Takaful product awareness (health and financial securities). - Demand of takaful products (housing …)
  19. 19. Growth Factors for Family Takaful Reducing Government security benefits Population will save more for the future (Annuity and saving plans)
  20. 20. Growth Factors for Family Takaful Cost of education Education is greater priority for people in Arab countries Saving plan for children education
  21. 21. Growth Factors for Family Takaful Economic Growth, per capita income and insurance penetration <ul><li>Insurance penetration: </li></ul><ul><li>Saudi 0.5% </li></ul><ul><li>Malaysia 6% </li></ul>
  22. 22. Growth Factors for Family Takaful Diminishing of joint family system Force to have their own financial security Compulsory Insurance Open the market further for takaful products
  23. 23. Survey Conducted Saving for the future (education)? 80% with Banks Do they understand differences between banks and insurance 91% No Awareness campaigns are needed
  24. 24. The most important factor Branding Identity Surplus distributed to the participants for both general and family takaful
  25. 25. Survey Conducted Change from conventional to Takaful if a reasonable percentage of surplus distributed? 70% will move to takaful companies on a condition that the same customer services quality will be provided
  26. 26. International conventional insurers Movement of international players to takaful Foster growth of takaful
  27. 27. Market potential for takaful worldwide – projection for 2015 3.2 0.4 Other 100 11.09 Total 3.5 0.39 Europe 9.6 1.1 Africa 11.7 1.3 America 34 3.7 South East Asia 38 4.2 Middle East Market share (%) US$ Billion
  28. 29. Thank You ..

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