Seizing the opportunities and meeting future challenges
Islamic insurance, commonly known as Takaful, is a key sector that impacts the lives of people, their security, stability, and their plans for retirement. Therefore, developing and investing in Islamic insurance will enable Takaful to increase productivity and better meet the needs of the public in securing their goals for a stable financial future.
While on the subject of enhancing productivity, we must understand that the basic goal of any economic activity is to achieve social and economic stability for the community, and reduce stress points and sustained anxiety about the future. Today, the Takaful sector is still at a nascent stage — particularly in comparison to conventional insurance sectors. Despite the myriad challenges that abound with any emerging sector, the opportunities Takaful offers are immense and attractive. Takaful is intrinsically based on concepts of shared contributions and cooperation that ensure no one member can make profits at the expense of another.
Let’s examine the growing opportunities within Islamic insurance or Takaful. It is one of the sectors that not only meets the needs of Muslims but also caters to a large cross-section of non-Muslim clients looking for ethical and humane entities to safeguard their rights in the event of an emergency. In the prevailing economic climate as I see it, there is a strong sense of mistrust between the public and insurance providers. With the exception of countries in the GCC region, specifically the UAE and Saudi Arabia, the Islamic insurance sector remains conspicuously absent in the wider Arab and Islamic world. This absence is either caused by the growth of conventional insurance companies or due to traditional frameworks and systems that do not recognise the legitimacy of Islamic insurance (Takaful).
Globally, until the end of 2016, the Islamic insurance sector was valued at around $33 billion (Dh121.21 billion). In the GCC region, the Takaful industry is estimated to be worth nearly $9 billion.
This validates the fact that a majority of Muslims — numbering 1.6 billion people, in fact — do not enjoy the services and facilities that Islamic insurance (Takaful) offers. The opportunities that exist in this sector are abundantly clear.
The key challenges that dominate the Islamic insurance sector:
Cooperation between relevant parties in the Takaful sector is vital
if we are to reformulate the laws of transparency and pragmatism within the sector itself. Insurance companies are the focus of several gatherings I have attended, and most of the discussions revolve around the lack of knowledge about the insurance companies’ laws or dissatisfaction about what clients know. Islamic insurance companies should aim to stand by their clients when their assets are adversely affected and not surprise them with something they are unaware of.
There is an urgent need to establish a unified global reference
for all Islamic insurance companies or to design a framework for Takaful companies that will help unify Takaful laws under one umbrella.
Takaful companies must agree to spend part of their profits in raising awareness of the concept of Takaful,
its legitimacy and its importance to the public — focusing on the role of Takaful in achieving social stability and enhancing the sense of security. These awareness campaigns should include activities that encourage the use of corporate laws to ensure transparency between the clients and Takaful companies.
It is important to introduce innovative Takaful products that allow different social groups across income levels
to benefit. Today, it is necessary to work on the basis that every individual is a stakeholder. Equally importantly, as stakeholders we need to work on developing guidelines for the investments of Islamic Takaful companies that will ultimately protect their financial solvency, reduce the risk of liquidity and manage their need for capital.
Takaful companies must making investments in real sectors
the conventional insurance
focus on economy
and provide their clients with a percentage of the dividends from these investments — offering them much-needed confidence, winning their loyalty and making them stakeholders in the nation’s progress.
Collaborations between small Takaful companies can enhance their competitiveness and financial viability
against companies. Such alliances will lead to the emergence of global Takaful entities that drive the development of the industry as a whole.
Guiding existing Takaful entities to work in developing their respective countries and conceptualising products that are aligned to the needs of the market
within these countries is also crucial. Furthermore, we need to focus on reducing the hesitation with regard to investing in these countries. There is abundant scope for lucrative investments in potential markets that are capable of development, especially if companies can adapt their laws and services to suit the requirements of specific countries.
the Last, but certainly not the least, is weakness of the re-takaful sector
that is forcing Islamic Takaful entities to fall back on the same models followed by their conventional counterparts to make up for the shortcomings within their own industry. In the process, they further augment the ambiguity surrounding their offering, while jeopardising their independence and the relationship of trust between themselves and their clients.
The Takaful market is a reflection of the principles and ethics of the Islamic economy sector at large. The significant global interest in developing this sector is an indicator of the positive shift in international economic policies.
Abdulla Mohammed Al Awar is CEO of the Dubai Islamic Economy Development Centre.