Global Islamic insurance sales rose nearly 20 per cent to US$8.3 billion (Dh30.48bn) in 2010, but opportunities still abound for further expansion, a new report has found.
Takaful contributions in the UAE grew by 28 per cent to reach $818 million during the year, said Ernst & Young's World Takaful Report 2012.
Saudi Arabia was the biggest market, with $4.3bn of sales, or more than half of the industry. Malaysia was the second-largest market, ahead of the UAE, with contributions of $1.4bn.
"The takaful industry continued to show double-digit growth in 2010, albeit at a relatively slower rate of 19 per cent compared to previous years," said Ashar Nazim, the head of Islamic financial services in the Middle East and North Africa (Mena) region for Ernst & Young.
"With current growth trends, and the addition of new fringe markets such as Indonesia and Bangladesh, we expect gross contributions of $12bn by 2012."
Takaful has grown from a low base in recent years as popularity rises for Islamic alternatives to conventional insurance products. Unlike conventional products, investments are held in Sharia-compliant assets.
The six-nation GCC made $5.68bn of Islamic insurance contributions in 2010, and South East Asia $2bn, according to the report.
Expansion in the GCC slowed to 16 per cent in the year from an annual average of 41 per cent between 2005 and 2009.
Opportunities existed for further growth in Islamic insurance catering for families, which accounted for as little as 5 per cent of the total takaful market in certain countries, Ernst & Young said.
"With high disposable income average and low market penetration, the GCC presents great potential for family takaful," said Gordon Bennie, a financial services industry leader in the Mena region for Ernst & Young
"Large Muslim markets such as Libya, Egypt, Bangladesh, Indonesia and Brunei are opening up to takaful."
Strong competition, evolving regulations and a lack of takaful expertise are key risks in both the GCC and South East Asia, said the report.
Young takaful operators were using aggressive pricing strategies to compete against more established players, it said. Such pricing was "not sustainable" and causing significant pressure on the industry's profitability.
At the same time, the industry was being squeezed by increasingly strict regulatory requirements on capital and solvency, it said. One in five insurance brokers in the UAE shut down in 2009 after new rules came in requiring Islamic and conventional insurers to have stronger financial backing.
But Ernst & Young forecasts further shake-ups.
"Industry consolidation would allow takaful operators to compete effectively with larger, more established conventional insurers and also reduce unhealthy price wars," said Mr Nazim.
"However, the industry is still growing rapidly, which is keeping shareholders interested in their takaful operations."
The industry would take more time to establish itself before it could be decided which players could sustain themselves and which could not, he said.
The Islamic Financial Services Board estimates assets of the Islamic finance industry will grow to $2.8 trillion by 2015, up from $1tn at the moment.
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