Present state of takaful
2.3.1 Present state of takaful
The world’s first takaful operator, the Islamic Insurance Company, was established in Sudan in 1979. At present, more than approximately 80 companies are operating in various jurisdictions offering life and general insurance services in compliance with the Shari’ah. There is no established source of data for the takaful segment of the IFSI. The background papers prepared for this document showed that by 2005, some 78 takaful companies would be operating worldwide. These sources showed that by the end of 2000, the total gross premiums written by takaful operators were worth US$530 million. The same sources estimated that the annualized average growth for 1995–2000 was 63%. Extrapolating this historical information, the present gross premiums written by takaful operators could be estimated to be worth US$5 billion, providing insurance coverage to an estimated US$20 billion of assets.
Takaful operators are largely concentrated in Malaysia, Sudan and Bahrain, where separate regulatory frameworks for takaful have been introduced, which helps to spur the growth of takaful services in these countries.
In any developed financial services environment, conventional insurance, be it general or life protection and savings, is an integral part of the financial sector. On the one hand, there is a large demand for such services in the IsDB member countries. On the other hand, conventional insurance is widely believed to be against the injunctions of the Shari’ah. Takaful is not only a product that provides financial security (for example, for the insured’s family in the event of his or her death), but such products can also enhance solidarity under the cherished Islamic principle of cooperation and mutual help. Hence, the worldwide potential market for takaful and re-takaful is large.
Life and general takaful, as well as re-takaful, are all in their infancy. This represents a major gap in the provision of Islamic financial services worldwide. Therefore, significant opportunities exist to develop the market for all types of Shari’ah-compliant insurance. Moreover, conventional insurance operators are showing a growing interest in takaful. Islamic and conventional banks have the opportunity to create and develop banctakaful, which will greatly enhance the ability to introduce takaful worldwide. Adoption by one or two international players will see an immediate global development of takaful.
Microfinance programs are on the rise all over the developing countries. These programs require micro-takaful support in order to function efficiently.
The synergy between conventional life insurance and the asset management industries is well known. It is no different for the takaful and Islamic asset management industries. The development of takaful – especially life (family) takaful – will greatly enhance the ability of Islamic fund managers to significantly increase assets under management as well as the number of clients in a fund. Similarly, the development of takaful services will also strengthen Islamic banking by providing risk coverage to their clients and reducing the banks’ exposure to risks, in particular when the permissibility of derivatives instruments in Islamic finance is still largely debatable. The potential of takaful as an alternative to hedging or risk management mechanisms makes it more important.