azerbaijan: emerging market islamic banking and finance

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TAKAFUL FOCUS NEWHORIZON October–December 2008 Insurance with principles After three years of negotiations and preparations, Salaam Halal Insurance is finally open for business. James Ling, NewHorizon’s contributing editor, takes a look at the UK’s first independent takaful provider. Despite all the positive words about making the UK a global Islamic finance hub, it had been severely lacking one aspect of Shari’ahcompliant financial services – a dedicated takaful provider. This is no longer the case. The UK’s first independent Islamic insurance company, Salaam Halal Insurance (SHI), was granted approval by the UK’s Financial Services Authority (FSA) in April of this year, and, at the end of July, it came to market with its first product, motor insurance. The UK takaful market had previously been seriously under served. Whilst there were products on the market, these only came through specialist Islamic windows at banks, and Muslims would usually have to compromise their faith in order to get insurance. The decision to offer takaful in the UK, therefore, seems like an obvious choice. ‘Islamic finance is growing at a very rapid rate universally, but [UK Prime Minister] Gordon Brown and the Government, The Bank of England and the FSA have all provided support in terms of Islamic finance and banking,’ says Iqbal Gelu, business development director for Principal Insurance Holdings. ‘The Government really wants Britain to be the global centre for Islamic financial products. We feel that there’s a great opportunity for us as the first independent takaful provider in this country to make a difference.’ It has been a long journey to get this far, and one regular NewHorizon readers will be familiar with. The seeds of the idea were sown in 2005, British Islamic Insurance We know there are 140,000 Muslim-owned businesses and we believe there is a market there. Iqbal Gelu, Principal Insurance Holdings Holdings (BIIH) was formed and attracted £60 million ($107 million) of investment from Saudi Arabia, the GCC and Asia. BIIH set about the lengthy discussions with the FSA to become the first insurance company in the country authorised to act entirely under Islamic rules. During this process it also changed its name to become Principal Insurance Holdings, before finally getting its approval. Principal then underwent a marketing exercise to find the most relevant brand for the company. It presented a choice of 30 potential names to focus groups to find the one that people could most identify with. This selection was narrowed down to five before Salaam Halal Insurance was chosen. ‘Salaam was preferred because it has strong positive connotations with our target audience, and similarly with all ages and backgrounds,’ explains Gelu. The decision to come to market with motor insurance first was a tactical one. In the UK every driver is required by law to have car insurance. If you add to this the two million Muslims in the country, the size of the potential market is clear. ‘We decided that car insurance is probably the product that has the largest distribution,’ says Gelu. ‘We wanted to go into the personal lines business first because it’s a product everybody needs.’ Gelu is keen to point out that SHI will not be providing products that are exclusively for Muslims. ‘One of the most important aspects of ourselves, our raison d’être as it were, is that this product is not only for Muslims. This is a mutual product and we 20 IIBI www.newhorizon-islamicbanking.com
NEWHORIZON Shawwal–Dhu Al Hijjah 1429 TAKAFUL FOCUS would like to promote it to the community at large as an ethical product.’ The car insurance product has been designed as a mutual product within Shari’ah principals. Policy holders (takaful participants) contribute a premium into a takaful pool. Any money in this pool is then invested into Shari’ah-compliant or ethical products that don’t provide interest. Any return on these investments goes back into the pool and any claims are taken out of it. Anything that is left over in that pool is then distributed to the policy holders as a discount on their renewal premium for the next year. ‘It’s a mutual pot, they are guaranteeing each other. They are the insurer and the insured,’ explains Gelu. ‘When they put in premiums it’s their money that’s invested, any return is their money.’ Principal will act as the takaful operator. Therefore, it will make its money through taking a wakala fee. ‘That fee covers us for all our costs, including administration, operating costs and the profit for the shareholders,’ say Gelu. The details of the wakala fee and the specifics of the takaful model adopted will be communicated to the participants through their documentation. To ensure that Principal’s activities are in line with Islamic law, it has appointed a Shari’ah supervisory committee made up of three prominent Shari’ah scholars: Shaikh Nizam Yaquby of Bahrain, Dr Mohammed Elgari of Saudi Arabia, and Mufti Abdul Kader Barkatulla from the UK. ‘All aspects of our business are underpinned by independent Muslim scholars, specialising in Islamic law, who give guidance, approval and supervision of our activities,’ explains Gelu. This is not just restricted to the products the insurer will put out. The committee will look at everything the takaful operator does to ensure it is Shari’ah-compliant. The company is working to a timetable of motor insurance first, followed by contents and buildings insurance, a product Gelu says will be ready for the market by the end of the year. In the next 18 to 24 months it is also looking to launch family takaful products, such as life insurance. It is also looking at commercial lines for SMEs. ‘We know there are 140,000 Muslim-owned businesses and we believe there is a market there,’ he explains. On top of this, it wants to examine expansion plans into Europe and the GCC. Gelu believes ‘the climate is right’ for Islamic finance. He is determined to challenge the stereotype that Islamic products are more expensive than conventional ones. ‘With our motor products we have to be competitive [in terms of price], and also our products will be competitive in terms of their features and conditions. We feel that we have to give our customers the same product that they enjoy today.’ The next challenge for Principal is to make its audience aware of SHI. To do this it is embarking on a community awareness and outreach programme. It is looking to get in touch with mosques, imams and community leaders, as well as organisations such as the Muslim Council of Britain to raise awareness of its products. It is taking a dual approach bring its products to the market. The first is taking the direct route. It has a UK-based call centre with advisers who can speak a number of languages to deal directly with customers. It is also using the online channel where people can get a quote and purchase insurance via its website. Gelu thinks this is a particularly important channel because ‘web-based business accounts for around 60 per cent of the insurance business’. However, this will not be the only route to market. The takaful company is also looking to sell its products through other Islamic financial service providers, such as banks. It is in discussions with these institutions in order to ‘try to get some cohesion and synergy with them to promote our products in conjunction with their financial products’. Principal is also looking at other organisations not currently involved with Shari’ah-compliant finance, such as supermarkets, to try and get its products sold this way as well. ‘It is very important that we have other channels,’ he concludes. One thing that Principal has benefited from in its marathon quest to get to market, is talking to the other Islamic financial service providers in the UK to get their experiences of starting out in this market. ‘Although we are a different type of organisation, we have learnt a lot, and experience has shown to us it’s going to be a slow process,’ explains Gelu. ‘Like any new business you can’t say you’re going to start making profits tomorrow. But in this case, because it’s a unique market, we have talked to the Islamic Bank of Britain and others, and taken their advice.’ By learning from others, Principal knows it needs to be in for the long-haul to be a successful business. ‘Currently we are positioned as an organisation to take market share in time. We’ve done a lot of analysis to see how our rates and prices match up.’ To take that market share it must provide products that are attractive across the board. Whilst it is true that Muslims do tend to buy products in accordance with their faith, to gain a significant market share the products must be universally appealing. In order to be a success, SHI’s products must be in line with what the market is demanding. Gelu knows that he is in for a challenge, the competition will be fierce and where Principal has led, others are bound to follow. But the company does have first mover advantage in a market that is clearly ready for its products. Modern Britain is a cultural melting pot, and any products that can provide ethical benefits are sure to be a hit with consumers. Only time will tell if SHI will be a success. Currently it has everything going for it; now it must take advantage of this, and push on to drive the industry forward. The UK has a long way to go if it is to achieve its aim of being a global hub for Islamic finance. But with its first takaful provider making it to the market, it is certainly on the right path. www.newhorizon-islamicbanking.com IIBI 21
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Page 4 and 5: EDITORIAL NEWHORIZON October-Decemb
Page 6 and 7: NEWS NEWHORIZON October-December 20
Page 8 and 9: NEWS NEWHORIZON October-December 20
Page 10 and 11: POINT OF VIEW NEWHORIZON October-De
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