legal guide09.indd - Islamic Finance News

The Opportunities for Growth in Takaful and
Current Challenges Faced
By Susan Dingwall and Ffi on Flockhart
The Takaful industry has grown considerably over
the past few years with gross Takaful contributions
increasing from approximately US$1.4 billion in
2004 to in excess of US$3.4 billion in 2007. Industry
commentators predict there is room for yet more
growth with estimates that the size of the global
Takaful market could be worth as much as US$8
billion by the end of 2012.
If those current estimates turn out to be accurate,
that will be an impressive achievement given the
financial crisis that has gripped many of the world’s
financial institutions causing market capitalization
to drop and moderating growth forecasts in almost
every financial sector.
Growth to date
Expansion has largely been achieved by targeting
markets with significant Muslim populations but
there remain largely untapped markets for the
further development of Takaful (including Turkey,
Iran, Pakistan, India and Egypt). In the Middle East,
the largest market for growth has been Saudi Arabia
and that growth is set to continue, particularly in
view of the liberalization of the Saudi market.
The Gulf Cooperation Council (GCC) countries generally
remain a strong contributor to growth particularly
given the increasing amount of compulsory covers
that are being introduced in the personal lines
market together with the increasing trend in the
commercial lines markets for Islamically funded projects
to be insured Islamically. The number of Takaful
operators now in existence means that it should no
longer be necessary to insure projects in the conventional
insurance markets.
Malaysia continues to be the largest and most
established Takaful market in Southeast Asia with
Family and Medical Takaful the largest and most
dynamic sector of business. Apart from savings and
retirement plans, other products which are being
sold include Hajj and Umra, marriage and education
plans. Huge opportunities exist for Takaful operators
in the GCC countries to realise the potential in
Family takaful with its related savings and pensions
products.
Further opportunities for growth
There is no doubt that Europe (with approximately
15-20 million Muslims) presents a significant
opportunity for the growth of Takaful.
There is already in Europe a strong consumer
awareness of the benefits of insurance and so there
would be a receptive audience to the unique selling
points of Takaful even among the non-Muslim
population, particularly the ethical investment policy
and the potential distribution of surplus.
There is already a growing demand in Europe for
ethical and so-called “green” insurance products,
such as motor policies where a proportion of the
premium goes towards carbon off-setting.
One idea to boost the Takaful industry in Europe
would therefore be to offer green solutions as part of
the Takaful products which would satisfy consumers’
moral and ethical concerns while they guarantee
each other against the risk of loss.
With London seeking to establish itself as the premier
Islamic finance center in Europe and the Financial
Services Authority being the first European regulator
to authorize a Takaful operator, Takaful operators
could seek authorization for their businesses in
the UK and then use the “passporting” process to
establish branches or sell cross-border to other EU
countries.
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