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The growth potential for Islamic Insurance (takaful) in the Arab Market A.Rahman Tolefat Head, Licensing and Information Manama, 21stMarch 2006 1 MENA REGIO IS GDP GROWTH OFA SIGNIFICANT LARGE MARKET WITH HIGHER MORE THAN 5% in 2004 GROWTH TREND SECOND FASTEST GROWING REGION AFTER CHINA Other Middle Eastern countries Lebanon Syria Jordan Iran GCC countries North Africa Egypt Algeria Tunisia Morocco Bahrain UAE Kuwait Oman Qatar Kingdom of Saudi Arabia Iraq 2 THE INSURANCE MARKET IN THE REGION IS EXPECTED TO GROW SIGNFICANTLY IN THE NEAR-MEDIUM TERM Growth expected in the premium Revenue Pool in the MENA region US $ million average growth of 36% per annum 6,000 Attractive opportunities for new international players 1,700 2000 2007 Source: McKinsey Team Analysis, Swiss Re, WMI 3 what Takaful? Derive from the verb Khafel Mean in Arabic mutually joint guarantees or Guarantees each other 4 Pact among group of participants who agree to jointly guarantee each other in case of any member suffer from a loss or misfortune in the future. 5 Flow of contributions Policyholders Pay claims, reinsurance & expenses Reserves funds Surplus Investments Contributions (Mudarabah) premiums) base on donation Wakhala Shareholders fees funds 70% Dividends 30% 6 Obligation of participants Shareholders fund Option(1): Qarad Hassan Participants fund Option (2):Pay additional premiums Investment Insurance operation Participants Deficit 7 Issues Specific to Takaful Takaful Premiums Premiums owned by policyholders Contract A combination of donation and Agency or profit sharing contract. Policyholders Participants mutually expected to share the surplus or pay the deficit Conventional Premiums owned by insurance company An exchange contract (sale and purchase) between insurer and insured Policyholders premiums to insurer. pay the 8 Issues Specific to Takaful Takaful Insurer Investment Takaful operator act an agent. If there is a deficit in takaful funds, the operator expected to provide interest free loan Assets must be invested in shari’ah compliance instruments Conventional Insurer is liable to pay the insurance benefits as promised from its assets. No restriction apart those imposed for prudential reasons. 9 Takaful companies Country Number Bahrain 14 Malaysia 8 Kuwait 4 Qatar 1 Iran 5 UAE 4 Sudan 16 other 8 Total 60 10 Geographical Distribution of Takaful contributions Arab Countries GPW (US$ Million) 580 Market share (%) 28 Iran 777 37 Malaysia 280 13 Other Asia Pacific Countries Other 425 20 52 2 2,114 100 Total 11 Arab Countries Vs Malaysia Market Malaysia Marke t Arab countries Market 6% 34% 66% 94% General Family General Family 12 Growth Potential for Takaful GCC & MENA Malaysia Iran Why? 13 Family Vs General growth? Family General Family Takaful would grow at faster rate of 20% p.a. than general takaful of 8% p.a. 14 Growth Factors for General takaful? Enhancement of Islamic banking and finance huge infrastructure project (multi billion projects): -Durrat al-Bahrain. -Qatar energy city. -Financial Harbor. 15 General Takaful Enhancement of Islamic banking and finance Market share of Islamic banks in customer finance: -Islamic Mortgages -Automobiles - Personal financing. 16 Growth Factors for Family takaful? Social security benefit Cost of education Compulsory insurance Young populations Factors Joint family system 17 Growth Factors for Family Takaful Demographic Young and more educated population - Takaful product awareness (health and financial securities). - Demand of takaful products (housing …) 18 Growth Factors for Family Takaful Reducing Government security benefits Population will save more for the future (Annuity and saving plans) 19 Growth Factors for Family Takaful Cost of education Education is greater priority for people in Arab countries Saving plan for children education 20 Growth Factors for Family Takaful Economic Growth, per capita income and insurance penetration Insurance penetration: -Saudi 0.5% -Malaysia 6% 21 Growth Factors for Family Takaful Diminishing of joint family system Force to have their own financial security Compulsory Insurance Open the market further for takaful products 22 Survey Conducted Saving for the future (education)? 80% with Banks Do they understand differences between banks and insurance 91% No Awareness campaigns are needed 23 The most important factor Branding Identity Surplus distributed to the participants for both general and family takaful 24 Survey Conducted Change from conventional to Takaful if a reasonable percentage of surplus distributed? 70% will move to takaful companies on a condition that the same customer services quality will be provided 25 International conventional insurers Movement of international players to takaful Foster growth of takaful 26 Market potential for takaful worldwide – projection for 2015 US$ Billion Market share (%) 38 Middle East 4.2 South East Asia 3.7 34 America 1.3 11.7 Africa 1.1 9.6 Europe 0.39 3.5 Other 0.4 3.2 Total 11.09 100 27 Market potential for takaful - projection 2015 4.5 4.2 3.7 US$ Billion 4 3.5 3 2.5 2 1.3 1.5 1.1 1 0.39 0.5 0.23 0.13 0 Middle East South East Asia America Africa Europe South Asia China Region 28 Thank You .. 29