Opportunities in Islamic Insurance

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Opportunities in Islamic Insurance

• Insurance Institute of London November 14th 2006

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Overview of presentation

• About ICMIF
• What is Islamic Insurance (Takaful)?
• Growth and outlook
• Takaful in Non-Muslim countries
• Potential in the United Kingdom

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About ICMIF

• Established in 1922
• 174 members from 69 countries
• Member driven services
• 17 Takaful members since 2002

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Why is conventional insurance not permissible?

• Uncertainty (Gharar)
• Gambling (Maisir)
• Interest (Riba)

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Earlier forms of Islamic insurance

• Dawania Mutual indemnification amongst officers
  during the rule of Umar Ibn Al Khattab (2nd
  Caliph)
• Diyyah and Aquilah Blood money and concept of
  removing hardship from victims family by payment
  of Diyyah, on a mutual basis, by relatives of
  offender
• Marine Insurance Early second century mutual
  fund to cover robberies and mishaps

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Fiqh Academy Resolution 1985

• Commerical insurance is prohibited
• Alternative contract confirming to principles of
  Islamic dealings is the contract of cooperative
  insurance, which is founded on the basis of
  charitable donation and Shariah compliant dealings

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Principles of Takaful

• Solidarity and joint guarantee
• Self reliance and self sustaining for community
  well being
• Assist those that need assistance
• Community pooling system
• Shariah approved investments and products
• Bear ye one anothers burden

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Takaful models in practice

• Not for profit model
• Taawuni model cooperative insurance
• Al Mudharabah model profit sharing
• Al Wakala model agency agreement

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Growth of the sector

• 1979 First Takaful Company established
• 1996 30 Institutions transacting Takaful
• 2002 50 Takaful operators and four Retakaful
  providers
• 2006 80 Takaful operators, 120 Takaful
  windows,12 Retakaful providers and premiums of
  3billion

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Future growth factors

• High potential for growth of insurance sector
• Retakaful capacity being established
• Increase in Shariah compliant investment products
• Harmonization of models and regulation
• Increase in technical expertise and consumer
  awareness.

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Future Outlook

• Ajmal Bhatty (2001) USD 7.14 bn by 2015
• Dr Malaikah (2006) Double digit growth over
  next ten years
• Atlas Business Magazine (2006) USD 12-14bn by
  2015

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Islamic Insurance in Non-Muslim countries
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Takaful in Non-Muslim CountriesIs there a need?
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Takaful in Non-Muslim countriesIs there a need?

• Fasting growing immigrant population
• Belief in will of God
• Acceptance that insurance is not allowed
• First and second generations are purchasing
  insurance
• Increased availability of information
• Growth of Islamic banking sector

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Potential for Takaful in the UK

• Established Islamic financial services providers
• Potential consumers are first and second
  generation
• Greater disposable income
• Growing awareness and demand for Takaful
• Regulatory openness
• Ethical positioning
• HSBC Property Takaful already launched
• British Islamic Insurance Holdings
• Lloyds syndicate

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Challenges in the UK

• Dispersed population
• Capital requirements
• Investment restrictions
• First to market
• Credibility
• Technical expertise
• Competitive pricing and service

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Possibilities for Takaful in the UK

• Affinity marketing of statutory products by
  cooperative and mutual insurers.
• Takaful window by existing conventional insurers

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Affinity Marketing by Cooperative and Mutual
Insurers

• It is well known that in most non-Islamic
  countries there are cooperative and mutual
  insurance companies. There is no harm from the
  Shariah point of view to participate in these
  services. So, it is unlawful for a Muslim living
  in a country where there is such a cooperative
  insurance company to make an agreement with a
  commercial insurance company..
• Ruling by the European Council of Fatwa and
  Research

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Ruling by the European Council of Fatwa and
Research

• Muslims are directed to purchase their statutory
• insurance requirements from the cooperative and
• mutual insurer if there is no Takaful company in
  the
• country

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The case of Folksam - Sweden

• 350,000 Muslim population
• Fastest growing immigrant community
• Collaboration with Swedish Muslim Council
• Marketing of Folksam products through
  representatives of Council in communities and
  mosques
• Insurance committee has been established

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Takaful Window

• Separate division
• Shariah board
• Islamic compliant investments
• Surplus distribution
• Policy wording

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Conclusion

• There is a growing awareness and demand for
  Islamic financial instruments including insurance
  in non-Muslim countries. There is a great
  potential for established financial institutes to
  set up Takaful windows. In particular the
  Shariah ruling by the European council presents
  an opportunity for cooperative and mutual
  insurers to be the first to penetrate this niche
  market with minimal costs.

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Thank youwww.icmif.org/takaful