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Islamic insurance: a competitive business in Yemen

By Dr. Moneer Saif Takaful, which translates into solidarity in English, is an Islamic monetary concept designed to assist and stabilize the financial situations of individuals, families and organizations.

Takaful is an insurance concept grounded in Islamic muamalat [Islamic banking] which observes the rules and regulations of Islamic jurisprudence. The concept has been practiced in various forms for over 1400 years.

Islamic insurance depends on principles of interdependence and solidarity with policyholders. At the end of each year, subscribers are provided with the surplus of the insurance company's share of the profits according to their equity. In this way, the system is advantageous for clients who receive part of the premiums they already paid.

The mutual guarantee offered by Takaful is centered on a transparent, ethical and Shariah-compliant agreement between the operator and participants.

Takaful operators can meet the financing needs of large projects, and can thereby help national economies enlarge the range of feasible investment projects and encourage economic efficiency.

With the development of Islamic finance in Yemen, certain banks chose to inaugurate a new Islamic Insurance company seven years ago. The banks did, however, encounter many difficulties; for example, people did not yet fully comprehend the particular nature of Islamic Takaful and how it works.

In 2010, Islamic Takaful gained momentum in Yemen when the United Insurance Company , one of the nation's leading insurance institutions, started a Takaful Sector. This move introduced the idea of Islamic Insurance to Yemen. Three other insurance companies later introduced Takaful insurance sectors. The number of investors has continued to grow, with many customers now choosing Islamic Insurance.

Tareq Abdul Wasie Hayel Saeed, General Manager of United Insurance Company , said that, "We established a special sector of insurance, Takaful, as it is our priority to meet the requirements of Yemeni society through the offering of new and distinctive products and services to satisfy our clients. This sector launched in September 2008 within the conventional insurance company. Takaful attracted many customers, particularly those who have a strong desire to deal with an insurance which represents a quantum leap in terms of services provided to the local market, as well as a new vision that has kept pace with global changes and regional insurances industries around the world." Saeed added that "80 percent of our customers have turned to Takaful insurance, this change being based on Yemeni society's preference for dealing with Islamic insurance, as they do in dealing with Islamic banks."

The concept of Takaful has spread throughout Islamic and non-Islamic banks. People now see these new developments in Sharia-compliant products as good alternatives to conventional ones. Moreover, there are some investors who see them as profitable alternatives, especially after the global economic collapse in 2008. As a result, the issuance of Sukuk (Islamic bonds) has since been adopted by non-Islamic countries such as the United Kingdom.

Since there is a lack of clear understanding among customers, many customers fear that Takaful is dominated by the commercial line of the company and don't have enough trust in the Islamic handling of their business. As a result, many of them consider both kinds of insurance are similar to each other. However, as many investors in Yemen are religion-oriented, they prefer to get Islamic insurance to the conventional one. However, some other customers prefer to deal with Islamic Banks and Islamic Insurance companies which come as an outcome of people's attitude and culture as Muslims feel content in no violation of Islamic instructions which not allow them to deal with conventional banks and insurance companies, according to Saeed:

"Lack of understanding and vision is not only limited to Takaful insurance but also people lack of understanding of conventional insurance. Insurance market in Yemen is still very small when compared to foreign countries not exceeding $75 million while the insurers are no more than 10 percent and 90 percent of Yemeni society still outside the insurance system. However, Takaful insurance has achieved big success which has great impact on other insurance companies to establish Takaful sectors."

It is obvious that interaction of demand and supply will determine the consumption of Takaful. The shift in demand for Takaful will occur as it is an innovative product and suits to socio-economic and religious teachings of Islam. That's why, Yemen as an Islamic country is likely to have good economic growth in this kind of activities, which meet the needs, and religious satisfaction of customers. However, the major increase in the consumption of Takaful will result from the increase in the supply of Takaful as the demand already exits.

Takaful market in Yemen is bound to grow more side by side with Islamic banks, which obtained good records till 2010 and 2011 despite the crisis that faces the country.

Although there is an increase in trend of people to deal with Islamic banks, there are some weaknesses that Islamic banks' must be aware of and according to some customers these weaknesses might affect the Islamic insurance too.

Abdullah, a resident of Sana'a, regularly deals with Islamic banks and the Takaful system. He said, "Islamic Banks haven't yet adopted all the Islamic finance methods, which leaves them vulnerable to criticism and can shake customers' trust in them.

"Some Islamic banks do not pay enough attention to caring for their customers, whereas conventional banks develop their systems and products to meet with their clients' satisfaction. Moreover, when I go to Islamic banks, I don't receive good welcomes from employees...as if I came to draw my money away by force," he said.

What's more, there remains a lack of awareness among customers regarding the key differences between Islamic and conventional banks.

Finally, if there is strong intensive media presence of Islamic banks to introduce these banks and Takaful, it will increase awareness of the privacy of Islamic banks and cause strong demand for Islamic Takaful, which will of course grow faster than it is now. However Takaful is still a reflection of the size of wealth and it is notable that risk management awareness is still very low among Yemeni investors. In addition, there is an urgent need to create a deeper understanding and awareness among the policy makers on what role Takaful can play to improve the quality of life and economic growth. for the welfare of the nation.

© Yemen Times 2012