A new special report from A.M. Best – Takaful Poised for Growth, But Greater Focus is Required - notes that “Takaful operators in the Gulf Cooperation Council (GCC) and Malaysia are growing at a rapid pace and are highly capitalized. Best analyzed 131 takaful operators and conventional insurers in the United Arab Emirates, Bahrain, Saudi Arabia, Oman, Qatar, Kuwait and Malaysia.”
The report confirms their rapid growth, which in most cases is “a consequence of the rapid expansion of the insurance markets in these countries, as opposed to increased demand for Shari’a-compliant offerings,” said Best.
It also indicates that “most takaful companies are highly capitalized on a consolidated funds basis. This is partly the result of many companies being in the early stages of operation and having failed to meet original business plans.”
Vasilis Katsipis, General Manager of Analytics, who will unveil the report findings at the International Takaful Summit in London today, explained: “Most general takaful operators are competing with conventional insurers on price as the majority of start-up companies are falling behind their original business plans. Takaful operators’ financial performance therefore tends to be inferior to conventional insurers as price is the most important factor, as opposed to Shari’a-compliant products being a unique selling point.”
Family takaful offers greater opportunities than general takaful as it provides protection to an underdeveloped segment in the GCC and Malaysia. “Family business is more profitable than general takaful, and is growing at a fast pace,” Katsipis added. “Family takaful is also outpacing conventional life insurance and offers the greatest opportunity for profitable growth of takaful operators.”
The report examines the financial performance and investment asset mix of takaful companies compared to conventional insurers. It also states that “positive regulatory developments for the takaful sector are occurring in several markets, with the introduction of specific takaful regulation. However, it adds that in most countries there is still considerable uncertainty as to the priority of liabilities in the case of insolvency of a takaful company.
Yvette Essen, Director of Industry Research – Europe and Emerging Markets, noted: “Takaful is expected to continue to be among the fastest growing segments of the GCC and Malaysian insurance markets. However, to ensure its longer term viability, operators need to focus on product differentiation as opposed to competing solely on price.”
Source: A.M. Best