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The outlook for takaful is promising due to double-digit growth coupled with the entrance of new players in the Islamic insurance segment. On the local front, the fund assets of the takaful general line business in 2006 was RM1.1 billion compared with RM800 million in 2005, while the takaful family or life insurance business was RM5.8 billion compared with RM5 billion in 2005. There are eight registered takaful operators with 2,967 employees.
Globally, the main takaful markets are in the Middle East and Southeast Asia, with Africa accounting for a smaller percentage of total premiums. According to a July 30 report on takaful by Fitch Ratings Ltd, many multinational insurers expanding into this sector are in Bahrain or Malaysia, two countries that have been proactive in developing the legal and regulatory environment. They also have the required infrastructure.
In Malaysia, the takaful industry began in 1984 with the passing of the Takaful Act. The first takaful company was set up the following year. Over the years, three other companies were granted licences and a fifth one was added in 2005. In March 2006, four new foreign-partnered joint ventures were approved, with HSBC Amanah Takaful being the first to write business in August 2006.
Says Keith Driver, CEO of HSBC Amanah Takaful (M) Sdn Bhd: "We are developing new approaches to test the market and make progress in products. We focus on bancatakaful as a way to add value to customer relationships with banks and to safeguard their lives and family livelihood."
Says Takaful Ikhlas Sdn Bhd's managing director Syed Moheeb Syed Kamarulzaman, "While the distribution channel for takaful has been via the traditional agency business, a higher percentage is coming from banks. For the entire takaful industry, about 40% of industry premiums are from banks."
Syed Moheeb says more takaful scheme arrangements are being made with non-banking groups, such as associations. "In future, we need to forge successful strategic partnerships in the takaful industry. We mostly see such partnerships between insurance companies and banks. For example, we have agreements with at least eight conventional insurance companies," he adds.
With the entrance of new players, there is a need to differentiate themselves from the existing ones. Some of the players have come up with innovative products, such as the introduction of the wakala model that is acceptable to the Middle East. Wakala is defined as an agency contract with an agreed fee for management services provided.
The new entrants have adopted a contemporary approach to takaful products and services and have introduced new ways to access products, such as call centres.
In general, companies are making takaful more accessible to the public through the use of technology while some companies are upgrading their IT systems to enable efficient payment of premiums.
Bank Negara Malaysia has played a key role in educating the public on takaful. Through Info Takaful and Info Insurance, the central bank spent millions of ringgit publishing articles and booklets to disseminate information to the public. Syed Moheeb feels that there should be greater dialogue among the authorities, takaful players and syariah scholars. "Some quarters believe that if we follow syariah regulations too closely, business will not be viable. There should be a balance as one can adhere to syariah requirements while running a commercially viable business."
HSBC's Driver says the government has come up with several ways to develop takaful and Islamic finance, such as providing fiscal or tax incentives for offshore activities. "Takaful operators face some different issues from traditional insurers. But ways are being sought to overcome these difficulties so that takaful can become as credible as conventional insurers."
Factors contributing to the growth of the takaful market include increasing consumer awareness, heightened Islamic consciousness and the development of legal and regulatory structures within a number of jurisdictions. An increasing number of takaful businesses are expanding their operations outside Muslim communities, marketing themselves as ethical providers to customers of all faiths.
The takaful sector isn't the only one registering growth. Islamic funds have also recorded impressive growth. Since the establishment of the first Islamic equity fund in 1968, there are now more than 102 syariah-based unit trust funds with a total net asset value (NAV) of RM9.5 billion, representing 7.1% of the total NAV of the unit trust industry. Lipper, a research company, noted that equity in Malaysia was the best performing category in 2006 and in that category, the best unit trust fund was an Islamic fund, the CMS Islamic Fund, which recorded a 53.8% gain. A global first last year saw the listing of an Islamic real estate investment trust (REIT) on Bursa Malaysia.
The encouraging growth in this sector has led to many new syariah-compliant funds being launched. One new area of development is syariah-compliant structured funds. Up until early this year, two such structured products were introduced. In 2006, the Securities Commission approved 17 new syariah-based unit trust funds.
A recently launched Islamic fund is ING Baraka Capital Protected II. This is a capital protected fund designed to provide investors with 100% capital protection and potential growth. It also aims to provide investors with access to global Islamic equities through an Islamic index portfolio. At the end of the three-year maturity period, the fund will return the unitholders' initial capital plus returns from offshore investments, if any. The capital protected value is derived from investments in Islamic negotiable instruments (INIs), issued by approved local financial institutions.
Another new fund is ING i-Enhanced Cash, which is a syariah-compliant cash management solution that provides capital protection, high liquidity, regular income distribution and convenient account management. It invests primarily in high-quality, short to medium-term Islamic fixed income instruments with minimum credit ratings of A3 or P2 by Rating Agency of Malaysia (RAM) or Malaysian Rating Corp Bhd (MARC) equivalent.
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