The sale of a 39% stake in Bank Al-Jazira's Ta'awuni life insurance company to international insurance firm Prudentialis part of an emerging regional trend, with global businesses trying to tap into the vast opportunities presented by the Middle East/North Africa insurance sector, where penetration levels are generally very low, and Islamic vehicles grouped under the heading takaful are at an early stage of development.
According to Prudential, insurance industry turnover represents only 0.3% of GDP in Saudi Arabia, compared to 3.9% in Malaysia and 2% in Indonesia. Takaful's potential in Saudi Arabia is much greater: all insurance companies in the Kingdom are sharia-compliant, compared to only 20% in Malaysia and 10% in Indonesia.
This is Prudential's second takaful venture, after opening its first Islamic insurance firm, in Malaysia, last year. Prudential spokesperson Carol Butcher told GSN that "in Malaysia we have sold 15,000 takaful policies, since the start of our operations in November."
Global takaful premium is estimated by Prudential to be worth 500m, and expected to reach 4.5bn in the next decade 60% of which is to be captured by markets in Malaysia, Saudi Arabia, Indonesia, Iran and the United Arab Emirates (see table, below).
Ta'awuni will initially be using Prudential's expertise in agency 'task forces' to distribute their life insurance products.
Butcher said bancassurance was an option being looked at seriously for the future. The agency task force model will be based on a team of 250 salespeople selling policies door-todoor.
Butcher observed that "this is a very effective sales method in Asia, particularly India."
Prudential will have the largest shareholding in the restructured Ta'awuni; Bank Al-Jazira retains hold 29% and promoters 2%, while 30% will be floated in an initial public offering later this year.
According to new regulations issued by Saudi Arabian Monetary Authority, a bank can only hold a maximum of 30% in an insurer, while 30% must be offered as free float.
Takaful today
Religion is one of the main reasons cited by companies why people not taking up insurance in Mena markets This was certainly the case in Egypt, where GSN recently discussed market trends with a wide range of sources, and it is also the case in many Gulf economies. Many Muslims believe that insuring, especially on your life, is haram (forbidden). "Life is in God's hands," was a frequently used formula when GSNquestioned about the low takaful take-up in Egypt.
However, financiers and insurers are now using takaful as the 'halal' option to capture this huge untapped market. Meaning 'guaranteeing each other' in Arabic, takaful means that "each participant agrees to give away as a tabarru (donation) a certain proportion of money to a fund from which any member who suffers loss due to a defined mishap or disaster would receive a certain sum of money," according to Cairo-based Egyptian Saudi Insurance Company (ESIC).Takaful is based on two models:Al-Mudharaba or Al-Wakala.
ESIC explains: "The Al-Mudharaba model means that if there is any surplus the takaful operation is shared between the takaful operator and its participants. The shared surplus will be a predetermined percentage between the operator and its participants. While the Al-Wakala model means that if there is any surplus it goes solely to the policyholders. The takafuloperator will only earn a fee for the services (as wakeel) and does not share any underwriting results."
Gulf States Newsletter 2007
