Takaful

Table of Content

• Introduction to Takaful
• Takaful Industry Evolution
• Product Innovation in Takaful
• Issues and Challenges

2
Global Takaful Overview

Strong double Malaysia

2 biggest Takaful
digit growth – showed better
markets i.e.
ROE compared
Huge growth Saudi Arabia &
to Saudi Arabia
potential Malaysia
& GCC
Malaysia
introduced IFSA
2013 – Leading
in Islamic
regulatory
framework
Various
CAGR of GWC New initiative in
regulatory
decelerate from London to cover
changes
22% (2007 – large
including AAOIFI
2011) to 16% in commercial risk
standards
2012

3
Global Takaful Overview
takaful products
contribute
Islamic financial RM6.3 billion or To date, total
industry 13% of market global financial
registered 17.3 share, assets of the
per cent conventional Islamic fnancial
Compounded insurance industry are
Annual Growth segment posted estimated to be
Rate (CAGR) in RM42.5 billion. around USD2tln
the past fve and expected to
years (between surpass USD3tln
2009 and 2014) by 2018

Takaful business
The analysts
valued at
forecast global Malaysia's USD26bln by
takaful market takaful segment end of 2015 and
to grow at a has seen a projected to
CAGR of 18.64% 12.4% CAGR surpass
over the period over the last five USD42bln by
2014-2019. years, 2020
conventional
insurance CAGR
of 7.8% over the
same period
4
 • Takaful industry has maintained its
strong double digit growth with
Takaful exceeding the growth of
conventional insurance. Overall, the
global gross takaful contributions are
estimated to be USD26bln as at end-
Global Takaful 2014

Overview • By gross takaful contribution, Saudi

Arabia and Malaysia has led the market
with estimated contribution of
USD7.2bln and USD2.7bln respectively

5
 • Based on the market consensus, the
growth of takaful industry in ASEAN
will continue to be buoyant at 22%
Global Takaful cumulative annual growth rate (CAGR)
(2009-2014) backed by its young
Overview demographic and economic dynamic.

6
Global Takaful Overview

• Sources: World Islamic Takaful Report

2014, Ernst & Young: Global Takaful
Report 2014. (Notes: *Excluding Saudi
Arabia)

7
Introduction to Takaful
8
Why Takaful?

"And help one another in righteousness and piety and do not

help one another in evil deeds and enmity"
(Al Maidah, 2)

"Be sure we shall test you with something of fear and hunger,
some loss on goods, lives and the fruits (of yours toil), but give
Glad tidings to those who patiently persevere, - Who say, when
afflicted with calamity "To Allah we belong and to him is our
return ".
(Al-Baqara,155-156)

9
Why Takaful?

The Prophet said, "Tie your camel first, then put your trust in
Allah"
(Tirmidhi and Ibn Majah)

“He who relieves someone in difficulty will be relieved by Allah

in this life and in the Hereafter. And he who protects a Muslim
will be protected by Allah in this life and in the Hereafter. Allah
helps His slave as long as the slave helps his brother…”
(Muslim)

“Verily, it is better for you to leave your off-spring wealthy than

to leave them poor, asking others for help”
(Bukhari)

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 • Originates from the Arabic word Kafalah,
which means "guaranteeing each other"
or "joint guarantee“.

• Based on principles of mutuality and co-

What Is operation, encompassing the elements of
shared responsibility, joint indemnity,
common interest and solidarity.
Takaful?
• It is a system of Islamic insurance based on
the principle of Ta’awun (mutual assistance)
and Tabarru’ (donation) where the risk is
shared collectively by the group of
participant voluntarily.

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 • Takaful system employs several Islamic
elements such as;
• Ta’awun (mutual help),
Underlying • Tabarru’at (willingly relinquish individual
rights over the contributions paid, for

Principles of collective benefits)

• Losses are divided and liabilities spread
according to the community pooling
Takaful system.
• It does not seek to derive advantage at
the cost of others.

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Opinion on Insurance

• Insurance can be defined “as a contract whereby one

Definition of person, called the “insurer”, undertakes, in return for the
agreed consideration, called the ‘premium’ to pay to
Insurance another person, called the “assured”, a sum of money, on
the happening of a specified event during a specific period.

• In Islam, all economic activities are legally permissible as

long as these activities do not transgress the tenets laid
down by Shariah. Unanimous opinion of all four major
Unanimous Opinion Sharī‘ah School of Thoughts, Shafii, Hanafi, Hanbali and
Maliki that all business transactions that contains the
elements of gharar, riba and maisir are considered invalid.

13
 Fatwa on Insurance

Fatwa Committee of the That Life Insurance

National Council for provided by present-day
Islamic Religious Affairs insurance companies is a
Malaysia, at its meeting business transaction
on 15 June 1972 which is voidable because
discussed and it contradicts the Islamic
deliberated on the issue business principles in view
of Life Insurance. that the contract contains
the elements of :
• Gharar (uncertainty)
• Maisir (gambling)
• Riba (usury)
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Fatwa on Insurance
The Islamic Fiqh Academy,
emanating from the
Organisation of Islamic
Conference, meeting in its
Second Session in Jeddah,
Kingdom of Saudi Arabia,
from 10 to 16 Rabiul Thani,
1406 H. (corresponding to
22 - 28 December 1985).
The Commercial Insurance
Contract, with a fixed
periodical premium, which
is commonly used by
commercial insurance
companies, is a contract
which contains major
element of risks, which
voids the contract and
therefore, is prohibited
(Haram) according to the
Shariah.
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 Forbidden Elements - Riba
• The word ‘riba’ literally
means ‘increase in’ or
‘addition to’ anything.
Islam has prohibited
lending of money for profit
because it is often ruinous
to the borrower and at the
same time makes the
lender obnoxious and
sullen.
• Exchange of ribawi items
(premium and benefit) at
different value and time
• Insurance company invest
the premium in interest
bearing investment.
• Interest charged on late
payment of premium.
• Interest charged on policy
loan.
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Forbidden Elements - Gharar
• Gharar means deficient
clarity with regard to the
subject-matter being
contracted. In business
terms it means to
undertake anything blindly
without sufficient
knowledge; or to risk
oneself in a venture not
knowing exactly what will
be the outcome.
• The insured does not
know the amount of
compensation he is
likely to get in case of
an accident or a peril.
• The insurer does not
know when the peril
will occur.
• Insurance is a promise
to pay compensation
which is sometimes
fulfilled and sometimes
not.
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Forbidden Elements - Maisir

• The word maisir • Insured could receive

means getting huge amount of
something too easily money, without
or getting a profit equivalent input.
without working for it. • Paying premium
Islam forbids all forms without getting any
of business in which amount in return.
the monetary gain
comes from mere • Premium collected
chance or speculation exceeds the claims,
and not from work. Insurers could make
huge profits
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 • Mudharabah
• Mudharabah
• Modified Mudharabah
Common • Wakalah
• Wakalah
Takaful Models • Wakalah + Incentives
• Hybrid (Mudharabah + Wakalah)
• Waqf

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Family Takaful (Mudharabah)
Participant

70% 100%
Contribution

Certificate
Investment Participants
Investment Benefits
Profit Fund Participants Risk
Fund
(Tabarru’) Surplus
Investment
Profit

30% Actual
Operator Management
Expenses

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General Takaful (Mudharabah)

Participant

100%
50% Contribution

Certificate
Investment Benefits
Profit Participants Risk Fund
(Tabarru’)
Surplus

50%
Actual
Operator Management
Expenses
Family Takaful (Modified Mudharabah)

Participant

80% Contribution 80%

Certificate
Investment Participants
Investment Benefits
Profit Fund Participants Risk
Fund
(Tabarru’) Surplus
Investment
Profit

20%
Actual
Operator Management 20%
Expenses

22
General Takaful (Modified Mudharabah)

Participant

50% 50%
Contribution

Certificate
Investment Benefits
Profit Participants Risk Fund
(Tabarru’)
Surplus

50%
Actual
Operator Management 50%
Expenses

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Family Takaful (Wakalah)

Participant

100% of Net

(1-x)%
Contribution

TAP Certificate
Investment Participants
Investment Expense Fund
Benefits
Profit Fund
Risk Fund
(10%)
Performance fees

Surplus
Investment Special Fund
Profit

Charge (10%)
Surplus adm.
x%
Actual
Operator Management
Expenses

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General Takaful (Wakalah)

Participant

100% of Net

(1-x)%
Contribution

TAP Certificate
Investment Participants Risk Benefits
Expense Fund
Profit Fund
Risk Fund
Performance fees

Surplus
Investment Special Fund
Profit

charge
Surplus adm.
x%
Actual
Operator Management
Expenses

25
Takaful industry
EVOLUTION

26
 Takaful Industry Evolution
Qatar –
Takaful
company
launched

Tunisia –
Singapore –
Sudan - Retakaful
Takaful
Takaful launched
company
launched launched
using Bahrain –
cooperatives AAOIFI
Malaysian model established
Switzerland -
National Indonesia –
Dar Al Maal Takaful
Fatwa – Takaful
Al Islami Trust Malaysia
deemed Indonesia
Takaful launched
conventional Luxembourg established
launched
insurance – Takaful S.A Malaysia
particularly launched Takaful Act Brunei –
life as Haram enacted Takaful TAIB
established

1972 1979 1981 1983 1984 1985 1991 1993 1994 1995

Note: Malaysia is the first to

introduce Takaful Act 1984

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Takaful Industry Evolution
Malaysia – 4
new Takaful
licenses
Malaysia –
approved
IFSB
established

Palestine – Al-
Sri Lanka – Takaful
Amana Palestinian
Germany –
Takaful Insurance
Munich
launched launched
Retakaful
launched
Dubai – Dubai
Lebanon – Al
Islamic Switzerland – Kenya –
Aman Takaful
Insurance Swiss Takaful
launched
launched Retakaful Insurance
Pakistan – Fist established Africa
Takaful Germany – established
Company Hannover
established Retakaful
launched

1996 1999 2002 2003 2007 2009 2010 2011

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Takaful Industry Evolution
Malaysia – Islamic Finance
Services Act (IFSA) required
separation of family and
general takaful into separate
Malaysia – entities
Takaful
Operating
Framework Indonesia –
launched Proposed new Act to
phase out takaful
windows
Pakistan – SECP
drafted Takaful
Rules 2012 Dubai – Rulers’ vision
allowing Takaful unveiled – Dubai aspires to
windows become the capital of
global Islamic economy
Qatar – Islamic Britain – Cobalt launched
finance platform for writing large
windows commercial risks (Shariah-
allowed compliant)

2012 2013

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Malaysian
Takaful
Industry

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 Next Phase : Financial Sector Blueprint 2011-2020

• This 10-year Blueprint is a strategic plan that

charts the future direction of the financial system
as Malaysia transitions towards becoming a high
value-added, high-income economy. On Takaful
Malaysian among others mentioned are
• Encouraging greater involvement of takaful
Takaful brokers in broadening the range of takaful
Industry product offerings and outreach by extending
MIFC incentives to such takaful brokerage
business activities.
• Promoting the use of takaful as a risk
management tool in Islamic financial
transactions, for instance in Islamic trade
finance transactions and sukuk
Product innovation in
takaful

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CRITICAL FACTORS IN PRODUCT INNOVATION
Development cycle Regulation Market Intelligent
& Shariah

Market
Substitutes
Needs
Product
Innovation

Competitio Retakaful
n Support
Profitability Technology
Support
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 EXAMPLE

Takaful via SMS

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Health Retirement Scheme

Current Constraints
Health takaful is limited during employment Underwriter declines application after
only retirement age

Innovative Proposition
Gratuity amount is allocated solely for
Accumulation of funds till retirement age
reimbursement of health related expenses

Results
Employees are covered during employment Retirees are covered via gratuity fund

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MRTT E-Submission

Current Constraints
MRTT approval process is time consuming
Delays in financing disbursement at the bank
(7-14 days) via manual application

Innovative Solution

Introduce online submission Smart Underwriting technology adopted

Results
Approval process is almost real time Ease of doing business at the bank

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Issues and CHALLENGES

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Issues and Challenges

Key Challenges

Evolving Shortage of Takaful

Rising Competition
Regulations expertise

Regulations vary Human resources

Untapped
Aggressive pricing Market significantly across risks continue to be
opportunities for
for market share consolidation jurisdictions and high on the
Takaful remain
continue to evolve executive agenda

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Issues and Challenges - Others

• Not as developed as conventional insurance

• Lack of global awareness
• Shortage of skilled resources in the Takaful market
• Limited Sharī‘ah compliant investments
• Lack of harmonised regulation of Takaful industry

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This Photo by Unknown Author is licensed under CC BY