Takaful operators in most Middle East and North Africa (MENA) markets have ample opportunity to provide sound financial protection that is in line with consumers’ religious sensibilities.
A.M. Best said these prospects remain disappointingly unrealised, considering the huge global Muslim population, with Takaful companies struggling to establish strong business profiles.
Reforms to takaful regulations across the Arabian Gulf are helping to improve the creditworthiness of companies in the loss-making industry, according to the ratings agency Standard & Poor’s.
Legal changes will cause short- term pain to the region’s Islamic insurers – but the rewards will be “better capital management, liquidity, internal controls, and corporate governance”, S&P said.
Morocco's government adopted a bill on Thursday to regulate Islamic insurance, legislation that will face a final vote by parliament later this year, a cabinet statement said.
It is the last step in Morocco's legislative package to regulate the country's fledgling Islamic finance industry. Earlier this year, it issued a decree allowing the creation of a sharia board to oversee the sector.
Kenya's regulator has introduced new takaful (Islamic insurance) rules which will allow the entry of conventional players into the sector, part of efforts to boost capital markets in East Africa's biggest economy.
Takaful is seen as a bellwether of consumer appetite for Islamic finance products. It is based on the concept of mutuality; the takaful company oversees a pool of funds contributed by all policy holders.
Analysts expect consolidation in the United Arab Emirates' takaful sector with new regulations, low margins and a highly fragmented takaful market, reported The National.
"[Takaful] companies should recognize that at the current scale of their businesses, they should merge," said an official. Reuters reported that many takaful firms have approached the U.A.E. Insurance Authority to seek approval for mergers. Mergers would "absolutely" be a boon for the ratings of the country's takaful firms, said an A.M. Best Co. Inc. official.
The Islamic insurance sector is just a sector of the overall insurance market, and is not a different market, according to Mr Max Taylor, head of the newly formed Islamic Insurance Association of London (IIAL).
Speaking at the International Takaful Summit in London last week, Mr Taylor, a former Chairman of Lloyd’s, said: ”We need to move away from the mind-set that Shariah and Islamic-compliant coverage is somehow a different entity entirely to conventional risk products.”
The Malaysian Takaful Association (MTA) expects MYR10 million (US$2.76 million) in insurance claims to be filed by about 5,000 policyholders from areas ravaged by the recent floods in the East Coast of the peninsula, reported the state news agency Bernama.
“As of mid-January this year, takaful operators have already disbursed claims amounting to RM2 million filed by about 1,000 policy holders,” MTA chairman Ahmad Rizlan Azman said at a media conference last week.
Qatar's takaful (Islamic insurance) market is small compared with neighbouring countries such as Saudi Arabia and the UAE but has been in fast forward motion in view of its exponential economic growth in the last few years. Experts and industry leaders converse with Qatar Today on the issues facing the sector and also its prospects in the coming years.Notwithstanding the unrest that engulfed many countries such as Egypt, Libya and Syria in the Middle East in the last four years, the growth of the takaful industry continued unhindered in the Gulf Cooperation Council (GCC) as investors and companies expanded their operations in the region.
Increasing demand for Sharia-compliant insurance in Bahrain has led to takaful premiums growing more than seven per cent last year, it has emerged.
According to Central Bank of Bahrain (CBB) executive director of financial institutions supervision Abdul Rahman Al Baker, the takaful (Islamic insurance) market has grown by almost 14 times in terms of premiums compared with the 2003 level.
Relatively low level of Takaful (Islamic insurance) penetration in theGulf Cooperation Council (GCC) is hurting the industry in these markets while favouring the growth prospects of other markets like Malaysia, according to global rating agency Standard & Poor's.
Even though the GCC is the largest takaful market, the industry has not truly flourished in any of the six GCC states, even if we treat the Saudi market as wholly takaful.