Takaful companies told to build scale to expand reach

Takaful needs to find its own market, not cannibalise an existing one, say industry experts at the World Takaful Conference 2014

　

Although global Takaful increased at eight per cent to $19 billion in 2012, and global premiums are forecast to expand to $20 billion in 2017, Takaful players are still struggling in a fragmented market. Rather than capture a piece of the existing conventional insurance market, Takaful must maximise its own unique selling points to reach new clients, according to industry players at the World Takaful Conference 2014, which concludes 15 April in Dubai.

According to Safder Jaffer, Managing Director and Consulting Actuary, Middle East & Africa, Milliman, Takaful shouldn’t try to compete with conventional players as compulsory health insurance is rolled out across the region. "Medical insurance is a cash flow management business with very thin margins – you need economies of scale, you clearly need a very solid infrastructure," he told Islamic Business & Finance. "I see health to be one of the most difficult lines for Takaful. Health is not a profitable line. Takaful means to give a profitable return to your shareholders – in medical insurance, if you just about survive you’re doing great!"

According to Amer Daya, Chief Executive Officer of Al Hilal Takaful, the opportunities for Takaful lie in the retail sector, with personal lines offering the best potential. "The biggest opportunities are in retail in the Middle East," he told Islamic Business & Finance. "It’s a very young market and it requires a lot of support financially."

However, Takaful companies must take care not to engage in a price war, and instead concentrate on giving good service. "The risk that all players need to avoid is falling into the trap of under-pricing to gain market share," Bassel Hindawi, Member of the Steering Committee, Mena Insurance CEO Club and former Insurance Commissioner of Jordan, told Islamic Business & Finance. "If this happens, it will be risky, as many Takaful companies are small and will not have a cushion to sustain losses. Takaful players need to be very prudent on pricing and make sure they design their health solutions on Shari’ah concepts which can be a very strong selling point for consumers."

According to Peter Hodgins, Partner at Clyde & Co, Takaful cannot rely on being Shari’ah-compliant as a selling point as the market becomes more crowded. However, it is possible for the industry to move beyond personal lines if it builds capacity. "Take aviation risk – the airlines are owned by the governments and the governments are Islamic," he told Islamic Business & Finance. "There’s a good argument for being able to offer Takaful products to these entities, but it’s whether you have the capacity. At this conference, we have talked about ‘building bulls’. The idea of a number of Takaful or ReTakaful players coming together to build the capacity necessary to fund such projects is, I believe, the inevitable future for Takaful."

Source CPI Financial