The Takaful industry continues to evolve at an uncertain pace. Mike Gallagher takes a look at the latest developments in the industry
There has been a number of important developments in the Takaful industry of late, most notably the entry of Allianz into the market and its decision to base itself in Bahrain, which is rapidly positioning itself as the undisputed heavyweight in the Middle East. Other big names like AIG and Hanover Re have also applied for licenses to operate there.
Another Bahrain-domiciled insurer, Takaful International, landed the lucrative contract to insure all of the power plants and other facilities that belong to the electricity and water ministry in Bahrain and in doing so fought off eight other bidders. The contract was worth $4.2 billion dollars and is the first Shari'ah compliant insurance policy of its kind in Bahrain.
The international Takaful market is estimated to be growing at 15 to 20 per cent a year, according to a recent report by the ratings agency Moody's. Total Takaful premiums were around $2 billion in 2005 and are forecast to top $7.4 billion by 2015.
Demand for Takaful is on the increase, but so is the demand for everything that goes with it, notably the talent to help deliver the various products to the masses. It is one thing to have the drive and ambition to want to corner the Takaful market, but another to be able to deliver on the promises. Omar Clark Fisher, a senior Takaful director from Unicorn Investment Bank has been reported as having estimated that there is somewhere between 6000 and 8000 people working in various aspects of the insurance business in the GCC, compared to Malaysia, which is thought to have around 80,000 working in Takaful alone.
The main reason for the shortage of talent is fairly simple, although sorting it out is easier said than done. All the big financial institutions are falling over themselves to offer Shari'ah products, both in the GCC as well as South East Asia and even Europe. The most hunted, threatened and biggest prize is a senior level executive that has the experience, knowledge and organisational skills that are in such short supply in virtually all areas of Islamic finance. It is safe to say that there is a lot of 'elephant hunting going on when it comes to poaching skilled staff.
Even Malaysia has enormous problems in retaining staff. The president of the Actuarial Society of Malaysia said that many were taking up better paying positions abroad, despite the boom in the market at home. Some of the more successful Takaful companies in Malaysia are averaging annual growth of over 60 per cent compared to around 10 per cent in the Middle East.
Universities never seem to turn out enough skilled actuaries and the length of time it takes to train not only actuarial staff, but also back office or client facing employees takes longer than in conventional insurance. A number of universities from Europe and the US, such as the Cass Business School from London have noticed and are attempting to plug the knowledge gap by offering courses in Dubai. Others are thought to be planning to set up shop in Kuwait and Bahrain.
Salaries are going through the roof and the emerging re-Takaful market is also putting a lot of pressure on the critical shortage of human capital. Takaful managers are trying to send their staff off to specialised training courses to boost their skillsets, but this means having to reduce staff in one area to cover another, which takes a complicated bit of juggling.
Customer service can suffer and likely will suffer for at least another 10 years until the colleges are able to churn out enough talent to meet the demand. And 10 years is optimistic, according to many market watchers. There is anywhere between 100 and 300 companies offering Takaful all over the world and the number is increasing every year. The numbers are a little uncertain because no one seems to have made any real attempt to count them all. One estimate suggested that there are 101 Takaful providers worldwide, with around 30 operating in the Middle East.
The industry is spreading its wings to some unlikely and exciting places. Takaful companies are understood to be the process of being formed in places like Canada, which has a 2 per cent Muslim population and countries like Australia, Lebanon, Singapore, Sri Lanka, and Egypt; with several more also in the UAE, Bahrain and Kuwait. Pakistan is also rapidly becoming a new and potentially lucrative location for the industry.
Nigeria is another country with a large Muslim population that is looking at Takaful and South Africa is also opening up and an as yet as an unknown number of insurance companies are believed to be considering opening Islamic windows. The South African finance ministry is also encouraging Takaful companies to set up shop in the richest country on the continent.
The Philippine government, which has been attempting to push through a number of ambitious economic reforms, is carefully looking at the Takaful industry as well, although this is unlikely to see the light of day for at least five years. Several former Soviet republics in South Asia, such as Kazakhstan, Tajikistan and Uzbekistan have been examining the possibility of taking a leaf out of the Middle Eastern Takaful book and delegations from both regions have been busy comparing notes in the past couple of months.
Promoting consumer awareness of Takaful is going to take a considerable amount of marketing, as personal insurance penetration is only at around 0.5 per cent to 2 per cent in the Middle East compared to 15 per cent in more developed markets. However personal Takaful policies are being taken up at a much greater rate than commercial ones.
Demand is slowly increasing at a consumer level, but everyone is watching the potential goldmine of Saudi Arabia to see how Takaful develops in the Kingdom Companies such as Tokio Marine, Salama, HSBC Amanah and FW Group have been applying for licenses to take advantage of new financial regulations, as the government begins to open up the market. The government has handed out 26 licenses and 10 more are due to be awarded soon.
HSBC expects to make at least $20 million a year from the Saudi market. They also have a presence in the UAE through the Abu Dhabi National Takaful Company, which made them $1.2 million last year, although they have yet to apply for a license. The Saudi Arabian government has also passed several new laws making health and vehicle insurance compulsory. Revenues in Saudi are expected to triple in the next two or three years.
There has also been a number of IPOs by ambitious Saudi Arabian insurance companies that have been keen to gain a foothold in the market. Sanad for Cooperative Insurance, Gulf Union Cooperative Insurance Co., Saudi Arabian Cooperative Insurance, Saudi Indian Cooperative Insurance, Al-Ahlia Insurance and Allied Cooperative Insurance Group and Al Ahli Takaful have all been busy vying for market share in Saudi Arabia, fully aware of the need to firmly establish themselves before the new regulations allow more competition to reduce the size of the market. Many of the IPOs were heavily oversubscribed, a possible sign of optimism in a tough environment where there has been several nasty corrections in the stockmarkets over the past two years.
The UAE has roughly 50 insurance companies and only three are pure Takaful providers, with two based in Dubai and one in Abu Dhabi, those being Dubai Islamic Insurance, Islamic Arab Insurance and the Abu Dhabi Takaful Company and this underscores just how small the UAE is compared to giants like Malaysia. The South East Asian nation issued six Takaful licences in the past couple of years. The UAE Takaful industry contributes just 1 per cent of total global Takaful revenues, although UAE companies are expected to increase their share of the GCC market to around 8 per cent within the next few years. The growth in premiums is currently running at around 2.5 to 3 per cent.
The real challenge for Takaful operators will be to see if they can win large commercial contracts in places like Dubai, Abu Dhabi and Saudi Arabia. Being awarded a contract to insure a large facility in the King Abdullah Economic City in Jeddah or one of the prestigious sky scrapers that are being planned for Dubai or Abu Dhabi will boost the visibility of the Takaful market enormously.
© Banker Middle East 2007
