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.
The other reason for the industry's solid performance is the double digit growth of the GDP of the GCC member states on account of surplus revenues generated by the sale of hydrocarbons in the last six years besides the increased purchasing power among Muslims, who are the main target of the takaful operators. With a strong banking sector as a back-up, the GCC governments have introduced Bancatakaful scheme which proved to be the most efficient channel in distributing tailor-made Islamic insurance products like medical takaful, the most sought after sharia-compliant product in the region.
The Malaysian Takaful Association has forecast that takaful contributions will increase to QR10.99 billion ($3.02 billion) in 2014 from QR8.88 billion ($2.44 billion) last year, on the back of a marketpenetration rate of 14%. GCC leads the growthDespite having less than 2% of aggregate Islamic financial assets, the global takaful industry grew by 5% registering total assets of QR101.19 billion ($27.8 billion) in 2013. Saudi Arabia led the growth in terms of actual volume with QR7.64 billion ($2.1 billion) representing a 23.9% increase but it was Indonesia's show as its takaful assets grew by an astounding 50.5% in 2013. In its report entitled "Global Takaful Insights 2014," the professional services firm Ernst & Young (EY) said that the gross takaful contribution of the GCC was around QR32.4 billion ($8.9 billion) in 2014 compared with QR28.76 billion ($7.9 billion) in 2013 and is expected to be around QR72.8 billion ($20 billion) by 2017.
Saudi Arabia, which is the core market in the region and commands 48% share in the global market, held the lion's share of 77%. "With the high potential of the internationalisation of takaful, the urgency to grow and push for regional champions within high growth and stable regions is greater than ever. This will allow the industry to leap to the next level to realise its global market potential and position it as a strong ethical-based alternative to conventional insurance," says Abid Shakeel, Senior Director of EY's Global Islamic Banking Centre. According to him, competition, operational issues and dearth of qualified talent continue to impact the sector's growth in the region. Profitability of takaful firms has been threatened not just by undifferentiated strategies but also the lack of uniform regulations allowing them to operate across different models. "Undifferentiated business strategies mean most operators are competing intensely and this is likely to squeeze out the under-performers. With strong competition from conventional incumbents, takaful operators are likely to continue their struggle in the medium term, although some will look at alternative customer segments and explore merger options," he says. In striving for scale and profitability, operators are looking at structural transformation around risk, pricing and cost efficiencies. Driving progress amidst intensifying competition, the industry is re-examining its strategies, operations and regulations in order to gear itself up for further growth and a sustainable ecosystem.
For instance, General Takaful, one of the leading Islamic insurance companies in Qatar, has fine-tuned itself to the changing situation. The firm has prioritised customer penetration, customer acquisition and profitability, growth in existing coverage and introduction of personal lines of insurance such as householders' insurance besides expanding traditional distribution channels to stay afloat in the business. Qatar a major hubAlthough small in terms of absolute market size, Qatar is considered a major hub for Islamic insurance given the large footprint of takaful companies and a progressive framework that supports strong governance and innovation. What has created bountiful opportunities as well as challenges for the local takaful operators is that the country has been experiencing organic growth for a couple of years and this trend is expected to continue and gain momentum until the FIFA World Cup in 2022, largely due to high government spending on infrastructure projects. Qatar also has tremendous potential to tap Islamic financial institutions like Islamic banks whose balance registered a growth of 28% between 2009 and 2013. The same has a trickle-down effect on Islamic insurance which insures assets thus created by the Islamic banks. Besides, the takaful firms are offering the unique benefit of paying cash surplus to their customers by virtue of their cooperative operating model. Damaan Islamic Insurance Company (Beema) Deputy CEO Nasser bin Rashid Al Misnad says that the growth opportunities for takaful companies in Qatar are good as the need for sharia-compliant insurance is growing steadily and the increasing numbers of takaful operators are testament to this. While Malaysia and Saudi Arabia have been the global leaders of the takaful industry, Qatar, which holds only 4.7% of Saudi Arabia's takaful assets and has a handful of takaful and re-takaful operators, has occupied top position in the market's development in 2013. According to the ICD Thomson Reuters Islamic Finance Development (IFD) report entitled "Harmony on the Horizon," Qatar's total Islamic assets stood at QR29.5 billion ($81 billion) and is ranked sixth among the 15 largest Islamic finance countries in the world. The top five positions are occupied by Malaysia, Saudi Arabia, Iran, the UAE and Kuwait, respectively. Of this, the share of Qatar's takaful assets is QR1.88 billion ($517 million) (see chart).
Despite a low asset base within the country, the industry's performance is varied as Qatar's takaful operators have ample opportunities to expand their businesses abroad by having tie-ups with their counterparts or opening offices in the developing Islamic financial markets like Sudan and Indonesia. In fact, Sudan is said to be the largest takaful market excluding Malaysia and the GCC region. "Opportunities for the takaful sector in Qatar are massive. This is largely due to the fast-paced economic growth environment in Qatar, where there is a keen interest from policy makers to support a vibrant and sustainable insurance sector coupled with a supportive tax environment and the emerging high standards of regulations," says Adeel Mushtaq, Director (Assurance and Advisory) with KPMG. While Qatar is not large in comparison with countries like Saudi Arabia in the region, the industry has the potential for growth, Mushtaq says. Strategic planning helpsWhat has given impetus to Qatar's takaful industry is the government's decision to bring it under the guidance of a single regulatory body and also to announce a strategic plan for the growth of the insurance sector. The companies too have been expecting the move and braced themselves to adapt to the changes as they feel that the regulatory changes were fundamentally re-shaping the insurance industry, creating strategic and operational challenges for insurers. "These operators have already accepted the growing role of new policymakers in insurance regulation, the growth of consumer protection laws, the latest insurance risk and the International Financial Reporting Standards (IFRS) accounting changes," Majed Akel, General Manager of General Takaful, says.According to him, Qatar's gross takaful contribution to the region, which stood at 8% in 2012 and is believed to hold at least 12-15% of the stake this year, is expected to increase in view of the government's decision to make the national health insurance scheme compulsory for all by end of 2016. PricewaterhouseCoopers Deals Partner in the Middle East Raymond Hurley says the growth prospects for takaful in Qatar are very exciting. Takaful follows core Islamic principles of mutual cooperation and risk sharing. Its philosophy of ensuring the well-being of society resonates in Islamic markets. "As awareness of wealth protection, savings and security benefits of takaful increases, families will increasingly demand such products as they broaden their use of Islamic financial services products. Given the existing low insurance penetration levels among GCC Muslim populations, it is plausible that takaful growth will outstrip conventional insurance growth over the next few years in both Qatar and the GCC," Hurley adds. Product innovationWhile the government is supportive of the Islamic financing sector, the operators have been working out new models and products to compete with their conventional peers. The companies have been innovative and offering more sharia-compliant products to attract customers as the industry is becoming customer-centric to a large extent. "In fact, almost all conventional products can be sold as takaful products with a little alteration to suit Islamic values. We also believe that product innovation is the key to a sustainable market growth," Akel says. Nasser bin Rashid Al Misnad supports the view, and says that, though there are enough sharia-compliant products, the companies cannot remain complacent. Times are changing rapidly and so are the needs of the customers. So the companies need to come up with innovative products from time to time to keep pace with the changes and needs. Recognising the importance of offering new products to their customers to stay in the game, Qatar Islamic Insurance Company (QIIC) says it has accorded priority to innovation, expanding outreach and improving customer experience.QIIC Assistant CEO for Technical Operations Mohammed M Al Jabari says companies have been working to match whatever is being offered by their conventional counterparts till now but this needs to be changed. "We feel that there is still room in the product development area and we are working on new products, in addition to the ones such as family package, school fee cover, etc. this year, that will be rolled out soon," he says. "There is definitely a need for family takaful (life and saving) products in Qatar as well as other countries in the region," Mushtaq points out. His observations are true as the industry is expected to grow at a CAGR of 23% till 2016 to QR4.37 billion ($1.2 billion) and the brisk rate of expansion in the family takaful segment is likely to help in improving the overall life insurance penetration and density in the GCC. The industry has shifted focus to a product-centric approach which left customers unable to distinguish takaful from conventional insurance products and led to price-sensitive competition among takaful companies. "This is the right time for takaful operators to invest in research and talent development to bring in much-needed creativity within the ambit of sharia principles. Furthermore, customers and takaful operators have shared the responsibility for enhancing customer awareness, as in my experience, takaful is the least understood concept of Islamic finance and banking," he adds.