The Global Islamic Insurance ( Takaful ) industry made major inroads into the insurance business as it recorded a five-year compounded annual growth rate (CAGR) of 33.2 per cent compared to 19.9 per cent achieved by the conventional insurance industry, a recent study by Moody's Investor Services showed. Takaful premiums which exceeded $4 billion in 2007 are expected to reach $20 billion by 2017. The rising popularity of Takaful insurance globally is primarily supported by the countries in the GCC, Levant, Africa and South-East Asia . The global takaful industry grew 16 per cent in 2012, a noticeable moderation from a 22 per cent compounded annual growth rate (CAGR) over 2007-201, according to a recent Ernst & Young study (EY). Takaful in most markets is still in its infancy, and its potential to replace conventional insurance in leading Islamic finance markets is still largely untapped. Leading centres Currently, Saudi Arabia, the UAE and Malaysia lead the industry with their relatively well-developed Islamic banking sector. The role of authorities in simplifying regulatory frameworks across borders and encouraging consolidation will also be a key in propelling the industry's expansion. In order for the industry to maintain its growth trajectory, there is a need for larger regional players who can provide leadership for building capacity in the industry and to address a number of business risks that the industry executives cite as challenges to the industry as a whole. " Takaful operators must adopt a clear strategy and capital plan that includes both organic and inorganic growth, and maintain and refine segmentation or exit and acquisition strategies, which can mitigate potential risks," said Ashar Nazim , Global Islamic Finance Leader EY. As industry leaders look beyond their borders, growth and profitability of the industry vary significantly by markets and sectors, depending on each market's maturity, industry and regulatory structure. While it is common to focus on populous Muslim markets, operators should not lose sight of other markets across Europe , Africa and the Asia-Pacific . According to a recent report by Moody's Takaful premiums contributed roughly 43 per cent to the GCC region's composite premiums in 2010 compared to 31 per cent in 2005. "These figures hide considerable country variations, with takaful usage at very high levels in Saudi Arabia, but still showing modest overall Takaful penetration in the UAE , Kuwait and other GCC markets. This high usage level in the Saudi market is driven primarily by compulsory medical insurance, via Takaful providers," said Mohammad Ali Londe , an analyst with Moody's. The majority of takaful premiums were contributed by family and medical products, of which less than 5 per cent of premiums were from family (or life) takaful. A similar growth trend is observed, albeit to a lesser degree, in the other Takaful target regions. While Saudi Arabia, the UAE and Malaysia hold the lion's share of the takaful market, the acquisition of market share has not necessarily translated into profitability in many instances. Financial performance and managing key strategic issues remain challenging for takaful operators in many markets.
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Source: Gulf News (United Arab Emirates)
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