In my 16 years within the Middle East Life Insurance industry, I have never witnessed such tremendous growth in sales for individual life insurance products as in the last three years. The boom in oil prices as well as the growing awareness of the benefits of medium to long-term savings with protection has contributed to this phenomenon. Statistics suggest that this is just the tip of the iceberg as the Middle East has very low penetration rate for insurance products. To add to this only a small fraction of this is generated from individual life insurance products making the proposition for the future even brighter. So what is the scope of Individual Family Takaful products for the foreseeable future within the Middle East?
In my humble opinion the growth potential is phenomenal. The market is virtually untapped and though traditionally this has been the domain of foreign conventional players, today we see the advent of several Takaful companies. In the last two years all insurance companies launched within the GCC have been Takaful companies. The boom in the Islamic Banking sector has helped shift the preference of the consumer towards Shar’iah compliant products and we in the Takaful industry have benefited from this.
If the population of a country or region, as in the Middle East, is predominantly Muslim and ‘all things being equal’ it is but natural that our Muslim brethren would prefer a Shar’iah complaint Takaful solution over its conventional counterpart. The appeal of a Takaful proposition doesn’t only lie in our religious beliefs as has been demonstrated in Malaysia where a mixed religious consumer base is increasingly opting for Takaful solutions. This is because in a Takaful proposition the underwriting profits are shared with the participants, thus enhancing the product’s value added proposition. A Shar’iah compliant savings plan will also appeal to the ethical investor, as a survey conducted in the UK suggests that ethical investors are willing to forego up to 2% return rather than choose a non ethical fund — with Takaful they don’t have to forego anything.
So for a Takaful company, the challenge then, is getting all things equal or better. This is especially true for individual family Takaful products, which are of a long term nature where the litmus test is not only to offer competitively priced flexible products at the outset of the plan but to maintain a consistently high performance in returns and services throughout the life of the plan. It is possible to create such a proposition as has been demonstrated through the recent launch of SALAMA’s range of individual Family Takaful products that compete like for like with their conventional counterparts. The products are marketed to clients on a need base approach and offer the flexibility to tailor make the plan to suit every individuals requirement. The range of products offered caters to all needs of the individual throughout the life cycle of the client. At SALAMA, we believe that our products being ‘Shar’iah compliant’ should be the ‘icing on the cake’ for the client and not the cake itself.
So why aren’t there an abundance of these Takaful companies in the region? The answer is simple — family Takaful is a long term and complex business, which requires shareholders understanding to invest substantial capital for the long term. Many shareholders do understand this and commit their capital but then are faced with the next big challenge of recruiting professionals with the expertise to create products, systems and infrastructure tailor made to the local market. There is a dearth of skilled professionals in the industry, which makes it a daunting task for shareholders to get the right team in place. One thing going wrong could set back the company by several months, not to mention the associated costs with it. Once these are in place then the management team has to ensure that ongoing services are of a superior quality with quick turnaround times and minimal documentation. Additionally, Takaful companies need to be rated by companies such as Standard and Poor and AM Best to gain credibility in the eyes of the consumer and this is increasingly difficult for a startup company, as most Takaful companies are.
To set up a successful family Takaful company, with the whole range of products to cover all aspects of an individual’s needs, takes anywhere between six months to a year. There have been several Takaful companies who have entered the fray and it is just a matter of time before they are ready to launch their Takaful products into the market. This will bring greater awareness to the consumer of the benefits of choosing Takaful solutions, which will in turn boost the sales figures of all Takaful companies alike. As mentioned, the individual life insurance market is virtually untapped so there is room for growth for both conventional insurance companies as well as Takaful companies, however I believe that the growth potential for Takaful is far greater because of the religious demography of the region and the added value that a Takaful proposition brings to the client.
Noel D’Mello Assistant General Manager- Head of family Takaful SALAMA-Islamic Arab Insurance Company Dubai, UAE
