Islamic insurance, also known as takaful, is a fast-emerging segment of the insurance industry, especially in Muslim-majority countries in Southeast Asia and the Middle East. According to a report by a global consulting firm, low penetration of takaful in these markets could be a vital source of growth.
The report, released by Milliman, examined the takaful sector from 2012 to 2015. It revealed that total global takaful contributions (analogous to insurance premiums) were estimated at US$14.9 billion in 2015, most of which came from Southeast Asia and the countries of the Gulf Cooperation Council (GCC).
General takaful, which covers risks such as fire, flood, and vehicle accidents, made up 83% of the revenues. On the other hand, family takaful, which corresponds to life, retirement, and health insurance, contributed only 17% to the revenue. As of 2015, general takaful grew by 17%, while family takaful grew by 1%, resulting in a combined growth rate of 14%.
GCC countries’ markets are dominated by general takaful with only limited family takaful participation, while the reverse is true for Southeast Asia, said the report.
“The GCC region dominates the global market penetration of takaful, which grew 14% in 2015,” said Safder Jaffer, Milliman's managing director for the Middle East & Africa and one of the authors of the study.
“However, a closer look at the market reveals that there is virtually insignificant penetration of family takaful, providing a huge opportunity for growth,” he added.
Malaysia is at the forefront of takaful regulation, as it was the first market in the world that has applied a risk-based capital framework. As more markets adopt a risk-based capital approach, growth is expected to slow down as regulators focus more on consumer protection.
But in the long run, these regulatory changes are expected to strengthen the industry as a whole and improve its long-term sustainability, said the report.
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