“The global takaful industry has continued to demonstrate a strong growth momentum, and increasingly being recognized as one of the major components of the Islamic financial system,” Abdul Rahman Al Baker, Executive Director of Financial Institutions Supervision at Central Bank of Bahrain (CBB) told the 2nd Annual Middle East Takaful Forum (METF 2013) which opened n Manama on Monday.
“Today, as with other forms of Islamic finance, the industry has gained significant interest as a viable and efficient alternative model of insurance. Generally, the global takaful contributions amounted to around $13.7 billion in 2010, a significant growth of 23% compared to the previous year, according to the World Islamic Insurance Directory 2012,” Al Baker added.
“During the past eight years, Takaful industry has recorded growth rates of around 20%, indicating high growth potential in years to come due partly to the present low rate of takaful market penetration globally. Basically, the growing awareness of and demands for insurance in accordance with Shariah principles on a global scale have been the catalyst towards making the Takaful services a flourishing industry,” he said while highlighting the sustained patterns of growth of Takaful industry.
“In Bahrain, the Takaful industry is one of the fastest growing segments of the overall insurance sector. As of the end of 2012, total takaful premiums reached BD49.8 million compared to BD40 million in 2011, a significant growth of 25 percent. Overall, takaful market has grown by almost twelve times in term of premiums compared to 2003. This growth is mainly due to the increasing demand for Sharia compliant insurance, the public awareness on Takaful, entrance of international players in the local market that offer Takaful business and the existence of enabling legislation that promotes the development of Takaful in Bahrain.
“Currently, the takaful premiums contribute to almost 22 percent of the overall gross premiums of the insurance industry in Bahrain, and the outlook for growth of this segment of insurance is very promising. During the past three years, we have observed positive changes in the mix of takaful contributions, as the family takaful has gained ground from overall total takaful premium. Basically, the family takaful share increased to 20 percent of the gross takaful contributions in 2012 compared to 10 percent in 2009. This growth in family takaful share is mainly due to the increase in the public awareness on the importance of family takaful, as well as the change in the apatite of the clients towards life products that are linked to investment.
“As a regulator, the CBB always believes in continual enhancement and improvement of its regulatory infrastructure for the growth and betterment of industry. The CBB has always played an important role in launching new initiatives to develop the insurance industry both locally and regionally. The current work towards revision of the existing Takaful model is one of such steps in reaffirming Bahrain as the jurisdiction of choice for all the Takaful and Retakaful companies globally. As you may aware, the objective of modifying the existing Takaful rules was to facilitate a faster growth of Takaful business in Bahrain while protecting the interest of all stakeholders, vis-à-vis participants, shareholders and Takaful operators. It is also expected that the changes to the model will attract new entrants to the market and will foster competition for the betterment of the consumers.
“Taking into considerations the significant growth of Takaful industry locally and globally, there are several factors that contribute to such growth. These include the remarkable growth of Islamic banking industry in the Mena region and other parts of the world which help in setting up takaful companies to complement its services. Furthermore, the low penetration of insurance in the Islamic world makes it possible for significant growth of Takaful, especially in Mena region which contributes to more than 3 percent of the World GDP.
“In addition, the outstanding economic growth in the Mena region during the past ten years, as well as the Muslim population which represents almost a quarter of the world’s population further enhances the growth of takaful industry. For sure, the existence of regulatory framework that is tailored made to suit takaful business is one of the critical factors that further boost the growth of the industry worldwide.
“However, there are several challenges facing Takaful industry that need to be properly addressed in order to further enhance the long term profitability and the soundness of the Takaful Industry, the first of which is the corporate governance issue regarding policyholder rights. In contrast to policyholders in a conventional mutual insurance company, who are the owners of the company, participants in general meetings, and have the right to remove the management, takaful policyholders have no such governance structures or rights, although in principle they are exposed to similar insurance risks. In fact, takaful policyholders seem to have no more governance rights than the policyholders of a conventional proprietary insurer, and must rely on market competition to get a fair deal and good value for money in their dealings with the Takaful operator.
“The second challenge is the issue related to the standardization of takaful accounting standards and disclosure, especially those related to capital adequacy and solvency, disclosure of Qard Hassan, and regulatory framework. Another challenge is the lack of human talents that have the necessary exposures and experience in takaful business, as well as those mastering Sharia compliance,” he said.
“One of the most critical challenges facing takaful industry is the issue related to the limited availability of the Islamic instruments like Sukuk, which are the most suitable type of the investment for takaful companies,” Al Baker said.
“Another challenge is with respect to offering micro-takaful to address the needs of lower income individuals in the society, as well as finding the appropriate distribution channels to offer takaful-assurance services through banks,” he said.
“The future prospects of takaful industry will hugely depend on the combined efforts of all relevant parties; the regulators, market players and the community at large, to chart the strategic direction for the industry. Collective effort is critical in order to maximize the potential for the takaful industry,” he said.