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      
Islamization of Insurance
History of Islamic Insurance

Islamic Perception on Insurance

What is Takaful?

Chronology of Events

Conventional Insurance vs. Takaful

Takaful Products

Global Takaful
 • Malaysia
 • GCC Countries (Bahrain, Kuwait, KSA, UAE, Oman & Qatar)
 • South East Asia (Singapore, Brunei & Indonesia)
 • Pakistan, Bangladesh and Sri Lanka
 • African Countries
 • Europe (Luxembourg & United Kingdom)
   
   In the Islamic history, the idea of insurance was mainly
    reflected in the various schemes of mutual help and
    assistance whenever a calamity or misfortune struck a
    person.
 'Insurance' was therefore, not a business for profit-making
    but a means to help the needy on a voluntary gratuitous
    basis.
 ‘Aaqilah’ was a well-known pre-Islamic notion, which Islam
    also approved, where all the members of a family or tribe
    mutually pooled their resources to ransom a member of the
    family or tribe who had committed a murder.
 They helped to pay the diya (blood-money) to the next-of-kin
S.K.of the person killed in order to save the Malaysia, Religion andretaliation.
1    Rashid (1993), Islamization of Insurance A Religio-Legal Experiment in culprit from Law Review, Vol-
2, Issue-I, Yr- 1993, Pgs- 16-40
    Merchants of Makkah used to have a scheme to
     compensate business-expedition losses and also
     those who suffered through natural hazards.
    Rasulullah Muhammad (s.a.w), who was trading with the
     capital of Khadijah, had also contributed to the fund from
     his profits2.




1S.K. Rashid (1993), Islamization of Insurance A Religio-Legal Experiment in Malaysia, Religion and Law Review, Vol-
2, Issue-I, Yr- 1993, pp - 16-40
2Afzal-ur-   Rahman (1979), Banking and Insurance (Economic Doctrines of Islam). Vol. IV, pp 32.
    Daman khatr al-tariq (surety for hazards on highway). If one person
     asks another to take a particular route and says it is safe and he
     stands surety for any loss, then he would be so liable if some loss is
     incurred by the second person3.
    Some other ways in which the idea of mutual help and amity was
     realized were:
        1.    ‘Aqd muwalat (contract of mutual amity).
        2.    Hilf (confederate)- where all mutual help was guaranteed through an
              agreement between persons; and the acceptance of a person by a tribe
              or family as one its own class or community for every calamity that might
              come to him.
        3.    Sowkrah – It is recorded by Ibn Abidin that during the last century there
              was a marine insurance practiced in the Ottoman Empire (circa 1863)
1S.K. Rashid (1993), Islamization of Insurance A Religio-Legal Experiment in Malaysia, Religion and Law Review, Vol-
2, Issue-I, Yr- 1993, pp - 16-40

3Mustafa Zarqa. 'Aqd al Tamin. pp. 32ff (Damascus. 1962). cited in Muslehuddin, Insurance and Islamic Law (New
Delhi 1982).
   Colonization brought modern insurance to the-Islamic
    world.
   Gradually in about a century's time insurance became
    generally available in the whole of the Arab world.
   It was not due to any popular or general acceptance of
    modern insurance by the Muslims who continued to
    reject it but because of the efforts of the western
    business interests to extend the facility of insurance to
    the Muslim world in order to cover their various risks.
   The generality of Muslims continued to remain aloof from
    insurance.
   
Riba
• Generally the money collected
  through premiums is invested by the
  insurance company in interest-
  bearing deposits, un-Islamic
  business or dealings.

Gharar
• There is gharar in insurance as both
  the parties do not know their
  respective rights and liabilities till
  the occurrence of the insured event.
Maisir
• Insurance is sometimes equated with
  gambling, maisir or wagering.
   
Takaful literally means joint-guarantee, a pact among
  a group of persons to indemnify a member of this
 group if he suffers a specified calamity or loss. The
amount comes out of a common pool created with the
  individual contributions of participating members.

 Takaful is based on the Quranic concept of taawun
                (mutual assistance).
                Help you one another unto
            righteousness and pious duty. Help
               not one another unto sin and
           transgression, but keep your duty to
                         Allah."
                      [Al-Maida: 2]
Mudharabah – Profit Sharing
 • The sharing of profit and loss between the participant and operator is determined in
   advance and judged on the basis of company’s developmental stage and earnings.
 • The sharing ratio is approved by the Shariah committee on advance basis. Normally
   total expenses are charged to shareholder under Mudarabah.

Wakalah – Agency
 • The participant pays the Wakalah fee from contributions that cover the total operator
   expenses of the business and operator salaries.
 • The Wakalah fee is determined by the Shariah Advisory Board of the company one
   year advance basis.
 • To give incentive to operator for good governance, management fee is paid as per
   the level of performance.

Wakalah Waqf– Agency for a Waqf
 • A Waqf fund is created as separate legal entity with the contribution of the
   participant’s amount and the amount deposited to this fund is considered as a
   “tabarru” donation. The aim of this fund is to provide relief to participants against
   defined losses according to the terms and condition of the Waqf fund.
Family Takaful
 •   Family Takaful
 •   Investment-Linked Takaful
 •   Child Education Takaful
 •   Medical & Health Takaful

General Takaful
 • Home Takaful
 • Motor Takaful
 • Personal Accident Takaful

http://www.islamicfinanceinfo.com.my/discover-
takaful/know-your-takaful-products
   Reinsurance of takaful business on Islamic principles is known as
    retakaful.
   Reinsurance is a form of insurance whereby an insurance company
    or a Lloyd’s syndicate can transfer to another insurer (the
    reinsurer) all or part of its liabilities in respect of claims arising
    under the contracts of insurance that it writes.
   This enables the an insurance company (reinsured or direct insurer)
    to protect itself against the risk that its total claims costs in any
    one year maybe so large wiping out its profits, or even cause it to be
    insolvent.
  
A COMPARISON
Conventional Insurance                         Takaful
Based on compensation of              Islamic financial
loss in exchange of premium           protection system which
which is paid by insured.             involves a joint
Conventional insurance is             guarantee scheme in
based on to take material gain
                                      providing possible
on behalf of other.
                                      indemnity or
                                      contingency.
                                      Takaful operation is
                                      based on the concepts
                                      of taawun (mutual help
M.M Hussain (2011), Conceptual And Operational Differences Between General
        Takaful And Conventional Insurance, AJBM Vol.1 No.8 [23-28]
Conventional Insurance                        Takaful
In conventional insurance one         Takaful does not
party agrees to undertake the         exchange risk
risk of other party in exchange
of premium and the other              by way of contribution
party promises to pay fixed           payments made to
sum of money to the first party       operator which means
on the happening of uncertain         operator is not selling
event with in a specific              and participant is not
duration.
                                      buying any risk
                                      coverage.
M.M Hussain (2011), Conceptual And Operational Differences Between General
       Takaful And Conventional Insurance, AJBM Vol.1 No.8 [23-28]
Conventional Insurance                        Takaful
Investment of Funds -                 Investment of Funds -
Conventional insurers may             Takaful companies
invest in such type of assets
                                      invest funds in interest
that are strictly forbidden by
the Shariah such as alcohol,          free avenues and with
gambling or pork                      the concept of Halal




M.M Hussain (2011), Conceptual And Operational Differences Between General
       Takaful And Conventional Insurance, AJBM Vol.1 No.8 [23-28]
Conventional Insurance                        Takaful
Conventional insurance                Takaful under Shariah
companies invest large amount         law, interest is
in fixed income securities on
                                      forbidden, which rules
their balance sheet in order to
minimize the risks and the            out the investment in
variability associated with the       fixed income securities.
equity.




M.M Hussain (2011), Conceptual And Operational Differences Between General
       Takaful And Conventional Insurance, AJBM Vol.1 No.8 [23-28]
Conventional Insurance                        Takaful
Under conventional                    Under Takaful contract
insurance, policyholder have          every policyholder has
no right to know how the
                                      the right to know how
premium are invested and
from where the claims                 their money is
originates.                           used, how the surrender
                                      value is calculated, the
                                      origin of claim
                                      settlements to ensure it
                                      is Halal.
M.M Hussain (2011), Conceptual And Operational Differences Between General
       Takaful And Conventional Insurance, AJBM Vol.1 No.8 [23-28]
Conventional Insurance                        Takaful
Under conventional                    Under Takaful
insurance, the insured forfeits       premiums are
his/her premiums on
                                      refundable along with
termination of a policy
                                      any corresponding
                                      surrender
                                      value less
                                      administrative fees


M.M Hussain (2011), Conceptual And Operational Differences Between General
       Takaful And Conventional Insurance, AJBM Vol.1 No.8 [23-28]
    
A Takaful Success Story
   1984 – 1992
    o Enactment of Takaful Act
    o Establishment of Syarikat Takaful Malaysia
   1993 – 2000
    o Introduction of competition with establishment of Takaful Nasional
    o Formation of ASEAN Takaful Group and ASEAN Retakaful
      International Ltd.
    o Takaful Malaysia & Takaful Nasional (now known as Etiqa Takaful)
      jointly developed a Code of Ethics for Takaful Industry (2000).
   2001 – 2010
    o Introduction of Financial Sector Master Plan which include
      enhancing Takaful operators capacity and strengthen the
      legal, shariah and regulatory framework.
    o Malaysian Takaful Association was established in 2002.
    o New licenses issued.
Etiqa Takaful
CIMB Aviva           (formerly Takaful
                     Nasional)

                     HSBC Amanah
Hong Leong Tokio
                     Takaful (Malaysia)
Marine Takaful Bhd
                     Sdn Bhd


                     Prudential BSN
MAA Takaful Berhad
                     Takaful Berhad


Syarikat Takaful     Takaful Ikhlas
Malaysia Berhad      Berhad
New Takaful licenses to joint-ventures
between Foreign Insurance entities and
             local entities
Regulatory      Bank Negara
                     Authority        Malaysia



                   Takaful Law     Takaful Act 1984


                     Shariah
                                   Shariah Advisory
Takaful Industry   Supervision
                                       Council
                   (Regulatory)

                     Shariah
                                      Shariah
                    Supervision
                                     Committee
                   (Operational)
                     Product
                   Notofication    Product General
                   (Launch and        Guidelines
                       File)
   Takaful Assets expanded to reach USD3.9 billion
    between 2005 – 2009
   Takaful Industry contributed 1.9% of the Malaysia’s GNI
   Family Takaful constituted 84.7% of total Takaful assets
    in 2009.
   Net contribution increase to USD1.1 billion between
    2005 – 2009.
   Family Takaful contributions rose from USD11.70 in 2005
    to USD30.60 in 2009.
   General Takaful contributions rose from USD4.30 to 9.00
    in the same period.
Other   Others   Medical & Endowmen
                              Investment
Temporary  3%       Health      Linked
                                  t
  12%                9%          17%
                             (Education)
                                 1%




     Mortgage
       47%

                               Other
                             Endowmen
                                  t
New Business
                                11%
Malaysia’s Takaful industry is expected to
continue to show strong growth underpinned by
the following factors:
   
     
Bahrain, Kuwait, UAE, Qatar, Oman &
            Saudi Arabia
 The
    region has one of the lowest
 penetration and density in the world
GCC Premium Contribution by Country, 2010
Source: Swiss Re, Alpen Capital (August 2011)

                                                Kuwait Bahrain
                                 Oman            5%      5%
                      Qatar       6%
                       7%




               Saudi Arabia
                  34%                                            UAE
                                                                 43%
Percent Contribution, GCC vs. Global Markets, 2010
Source: Swiss Re, Alpen Capital (August 2011)

  GCC                                           Wor
  Regi                                           ld
  on, 0                    Life,                Mar
                           13%                  ket,   Non-
                                                 0     Life,
                                                       42%

                Non-                                                     Life,
                Life,                                                    58%
                87%


                     GCC Region                                World Market
GCC Premium & Premium Growth (2006-2010)
Source: Swiss Re, Alpen Capital (August 2011)

                                       Non-Life      Life   Growth
       16,000                                                                     35.00%
                                   32.80%
       14,000                                                                     30.00%
                                                                         1,787
       12,000                                     26.50%
                                                                                  25.00%
                                                              1,595
       10,000     22.10%                          1,314
                                                                                  20.00%
        8,000
                                    1,203                                14.30%
                                                                13.60%            15.00%
        6,000       783                                                  11,845
                                                             10,329
        4,000
                                                  9,186                           10.00%
                                   7,099
                   5,470                                                          5.00%
        2,000


           -                                                                      0.00%
                    2006             2007          2008        2009       2010
GCC Premium Growth Forecast, 2010-15
Source: Swiss Re, Alpen Capital (August 2011)
                                                            Non-Life     Life   Growth
 40,000                                                                                           25.00%



 35,000                    20.90%
                                                                                     20.20%
                                          19.40%                       19.60%
                                                    18.90%                                        20.00%
 30,000
                                                                                         5,179

                                                                       4,093
 25,000    14.30%                                                                                 15.00%

                                                    3,262
 20,000
                                           2,609
                                                                                                  10.00%
 15,000                     2,112
                                                                                         28,454
             1,787                                                     23,882
 10,000                                             20,137
                                           17,073                                                 5.00%
                           14,372
  5,000
            11,845

     -                                                                                            0.00%
              2010           2011           2012     2013               2014              2015
Large and young population,
 • with access to education, media and new technologies, will push the demand for financial
   products.
Growing expatriate population
 • will drive health insurance.

High and Rising GDP per Capita.

Economic Diversification
 • GCC Countries have begun investing across varied sectors including
   manufacturing, retail, automobiles, tourism etc.
Compulsory Insurance.

High Savings Rate.

Sharia Compliant Products.
Global takaful 1
Global takaful 1
    
Indonesia, Singapore & Brunei
   1994
    o Established PT Syarikat Takaful Indonesia
   1995
    o Established PT Asuransi Takaful Umum
   2010
    o Standardization of Takaful policy for fire and vehicles
   As of 2008 – Takaful penetration is only 0.04% of GDP
   Takaful premium rose 48 percent in Indonesia in 2010 to
    4.5 trillion rupiah ($489 million), while Malaysia's market
    expanded 17 percent in the first seven months of last
    year to more than 10 times that size (Bisnis Indonesia
    March 2012).
Hindu
   Catholics         Others
                2%
       3%             3%
Protestan
    ts                                       Islamic Banking Deposit
   6%
                                               Growth (USD billion)
                                                                 5.8   6.2
                              Muslim
                               86%
  Religion                                                   4
                                                       3.2
                                                 2.3
                                           1.8

   Median age:
   total: 28.2 years
   male: 27.7 years
   female: 28.7 years (2011 est.)

                          Source: www.indexmundi.com
   JAKARTA: Assets of Islamic insurance industry in Indonesia
    grew 32% in 2011, faster than that of conventional
    insurance, thanking to robust business growth in the segment.

    Capital Market and Financial Institution Supervisory Agency
    (Bapepam-LK) recorded that assets of Islamic insurance in
    Indonesia was IDR9.2 trillion (USD1 billion) at end of last
    year. Meanwhile, conventional insurance including life and
    general insurance grew not more than 27% in 2011.

    Islamic-based insurance, or known as takaful, grew by 50%
    annually in average during the past five year. Takaful is
    insurance business holding to Islamic principles in its
    practices.
                        Bisnis Indonesia - Islamic Insurance Assets Grow 32% On Strong Deman
                        Oleh Anggi Oktarinda, Hanum KD
                        March 22, 2012 08:41
Buddhi     Religion Christi
                         an
  st                        Others
                        10%
 13%                         10%




          Muslim
           67%




Median age:
total: 28.4 years
male: 28.3 years
female: 28.6 years (2011 est.)
Religion               Hindu Catholic
                                                                             5%
                                                                      4%
Takaful commenced in 1995                                                   Christian
                                                         Taoist                10%
                                                          8%

                                              Buddhist
Currently has 3 operators: HSBC                 43%                     Others
Insurance, NTUC Income, United Overseas                                  15%
Insurance. One retakaful – Tokio Marine
                                                            Muslim
                                                             15%


No separate set of regulations for Takaful



Opportunities mainly in housing sector

Has plans to facilitate Takaful industry by
tackling issues such as lack of Shariah-
compliant assets and conflicting codes of
supervision and tax treatments.
     
Pakistan, Bangladesh & Sri Lanka
1983                        1992                        2000

       • Review by                 • Report by the             • Insurance
         Council of                  Council of                  Ordinance
         Islamic Ideology            Islamic Ideology            defined the term
         on takaful                  on Islamic                  Takaful and
         system in                   Insurance                   provided for
         Pakistan                    System                      establishments
                                                                 of Takaful
                                                                 Operators
2005               2006               2008

   • Introduced       • Established      • Established
     Takaful            Pak-Qatar          Dawoood
     Rules              Family             Family
   • Established        Takaful Ltd        Takaful
     Pak-Kuwait         and Pak-
     Takaful Co.        Qatar
                        General
                        Takaful Ltd
                      • Established
                        Takaful
                        Pakistan
                        Ltd
   Insurance penetration is
    only 0.8% of GDP
   SECP plans to promote
    microinsurance.
   Takaful
    opportunities, mostly in
    mortgage and auto
    insurance.
   Biggest challenge:
    o   Poor market capitalization
    o   Lack of awareness
    o   Lack of skilled HR
    o   Limited investment
        avenues and retakaful
        options
   Takaful started with the
    establishment of Takaful
    operators in 2000.
   As of 2010, there are only 6           Religion   Others
                                   Hindu               1%
    Takaful operators compared     10%
    to 13 conventional
    insurance companies
   Opportunities in housing
    loan insurance since many
    new housing projects and                    Muslim
    large young population.                      89%
   Biggest challenge:
    o Lack of awareness
    o Low disposable income
   Takaful started with the    Population: 21,283,913 (July 2011 est.)
    establishment of Amana
    Takaful in 2002.            Median age: total: 30.8 years
                                male: 29.7 years
   In 2006, Ceylinco Takaful   female: 31.8 years (2011 est.)
    was established.
                                         Others            Muslim
   Upward trend in banking     Christia 10%                8%
                                  n
    deposits and large young     6%
    population suggest good      Hindu
                                   7%
    growth opportunities.
   Biggest challenge:                                  Buddhis
                                                           t
     o Lack of awareness                                 69%
   
Sudan
• Takaful started in 1979 when the Islamic
  Insurance Company of Sudan was formed.

Egypt
• Takaful began with the establishment of Egypt-
  Saudi Insurance House in 2002.

Tunisia
• Best Re was formed in 2008.

Algeria
• Salama Assurances Algerie was formed in 2007.
Senegal
• Sosar Al Amane formed in 2005
Gambia
• Takaful Gambia Ltd. Was formed in 2008.
South Africa
• Takaful product were introduced in South Africa
  by Al-Noor Risk Solution in 2008, using the
  license of an existing insurance co.
Kenya
• There is also the Takaful Insurance of Africa
  established in Kenya but no further details can be
  acquired.
The Takaful industry is expected to grow in
   Africa underpinned by the large and
   relatively young Muslim population.
Muslim population is estimated to make up
 approximately 52%* of African population
and the majority are within the 15-64 years
            Biggestgroup**.
                age Challenge:
  Lack of awareness and low disposable
                  income
  *http://www.islamicpopulation.com/africa/africa_islam.html
                  ** CIA The World Factbook
    
United Kingdom & Luxembourg
Religions in the UK
                                   Hindu
                                    1%

                                    Others
                                     2%
Christia
  n
 71%                             None
                                 23%



                                   Muslim
                                    3%
Global takaful 1
   
   The biggest challenge in introducing and developing
    Islamic Financing is the creation of awareness.
   At present, countries only become interested in Islamic
    Financial products because they want to trade with the
    oil rich middle-east countries.
   In western countries, Islamophobia also poses a
    formidable challenge. Again, the spread of awareness on
    Islam’s true values and virtues.
   But, there is a huge potential for growth in the future.
   Malaysia, with its strong economic and political
    fundamentals, must ensure it stamps its mark in the
    world as the leader in Islamic financial products.

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Global takaful 1

  • 1.  Islamization of Insurance
  • 2. History of Islamic Insurance Islamic Perception on Insurance What is Takaful? Chronology of Events Conventional Insurance vs. Takaful Takaful Products Global Takaful • Malaysia • GCC Countries (Bahrain, Kuwait, KSA, UAE, Oman & Qatar) • South East Asia (Singapore, Brunei & Indonesia) • Pakistan, Bangladesh and Sri Lanka • African Countries • Europe (Luxembourg & United Kingdom)
  • 3.
  • 4. In the Islamic history, the idea of insurance was mainly reflected in the various schemes of mutual help and assistance whenever a calamity or misfortune struck a person.  'Insurance' was therefore, not a business for profit-making but a means to help the needy on a voluntary gratuitous basis.  ‘Aaqilah’ was a well-known pre-Islamic notion, which Islam also approved, where all the members of a family or tribe mutually pooled their resources to ransom a member of the family or tribe who had committed a murder.  They helped to pay the diya (blood-money) to the next-of-kin S.K.of the person killed in order to save the Malaysia, Religion andretaliation. 1 Rashid (1993), Islamization of Insurance A Religio-Legal Experiment in culprit from Law Review, Vol- 2, Issue-I, Yr- 1993, Pgs- 16-40
  • 5. Merchants of Makkah used to have a scheme to compensate business-expedition losses and also those who suffered through natural hazards.  Rasulullah Muhammad (s.a.w), who was trading with the capital of Khadijah, had also contributed to the fund from his profits2. 1S.K. Rashid (1993), Islamization of Insurance A Religio-Legal Experiment in Malaysia, Religion and Law Review, Vol- 2, Issue-I, Yr- 1993, pp - 16-40 2Afzal-ur- Rahman (1979), Banking and Insurance (Economic Doctrines of Islam). Vol. IV, pp 32.
  • 6. Daman khatr al-tariq (surety for hazards on highway). If one person asks another to take a particular route and says it is safe and he stands surety for any loss, then he would be so liable if some loss is incurred by the second person3.  Some other ways in which the idea of mutual help and amity was realized were: 1. ‘Aqd muwalat (contract of mutual amity). 2. Hilf (confederate)- where all mutual help was guaranteed through an agreement between persons; and the acceptance of a person by a tribe or family as one its own class or community for every calamity that might come to him. 3. Sowkrah – It is recorded by Ibn Abidin that during the last century there was a marine insurance practiced in the Ottoman Empire (circa 1863) 1S.K. Rashid (1993), Islamization of Insurance A Religio-Legal Experiment in Malaysia, Religion and Law Review, Vol- 2, Issue-I, Yr- 1993, pp - 16-40 3Mustafa Zarqa. 'Aqd al Tamin. pp. 32ff (Damascus. 1962). cited in Muslehuddin, Insurance and Islamic Law (New Delhi 1982).
  • 7. Colonization brought modern insurance to the-Islamic world.  Gradually in about a century's time insurance became generally available in the whole of the Arab world.  It was not due to any popular or general acceptance of modern insurance by the Muslims who continued to reject it but because of the efforts of the western business interests to extend the facility of insurance to the Muslim world in order to cover their various risks.  The generality of Muslims continued to remain aloof from insurance.
  • 8.
  • 9. Riba • Generally the money collected through premiums is invested by the insurance company in interest- bearing deposits, un-Islamic business or dealings. Gharar • There is gharar in insurance as both the parties do not know their respective rights and liabilities till the occurrence of the insured event. Maisir • Insurance is sometimes equated with gambling, maisir or wagering.
  • 10.
  • 11. Takaful literally means joint-guarantee, a pact among a group of persons to indemnify a member of this group if he suffers a specified calamity or loss. The amount comes out of a common pool created with the individual contributions of participating members. Takaful is based on the Quranic concept of taawun (mutual assistance). Help you one another unto righteousness and pious duty. Help not one another unto sin and transgression, but keep your duty to Allah." [Al-Maida: 2]
  • 12. Mudharabah – Profit Sharing • The sharing of profit and loss between the participant and operator is determined in advance and judged on the basis of company’s developmental stage and earnings. • The sharing ratio is approved by the Shariah committee on advance basis. Normally total expenses are charged to shareholder under Mudarabah. Wakalah – Agency • The participant pays the Wakalah fee from contributions that cover the total operator expenses of the business and operator salaries. • The Wakalah fee is determined by the Shariah Advisory Board of the company one year advance basis. • To give incentive to operator for good governance, management fee is paid as per the level of performance. Wakalah Waqf– Agency for a Waqf • A Waqf fund is created as separate legal entity with the contribution of the participant’s amount and the amount deposited to this fund is considered as a “tabarru” donation. The aim of this fund is to provide relief to participants against defined losses according to the terms and condition of the Waqf fund.
  • 13. Family Takaful • Family Takaful • Investment-Linked Takaful • Child Education Takaful • Medical & Health Takaful General Takaful • Home Takaful • Motor Takaful • Personal Accident Takaful http://www.islamicfinanceinfo.com.my/discover- takaful/know-your-takaful-products
  • 14. Reinsurance of takaful business on Islamic principles is known as retakaful.  Reinsurance is a form of insurance whereby an insurance company or a Lloyd’s syndicate can transfer to another insurer (the reinsurer) all or part of its liabilities in respect of claims arising under the contracts of insurance that it writes.  This enables the an insurance company (reinsured or direct insurer) to protect itself against the risk that its total claims costs in any one year maybe so large wiping out its profits, or even cause it to be insolvent.
  • 15.   A COMPARISON
  • 16. Conventional Insurance Takaful Based on compensation of Islamic financial loss in exchange of premium protection system which which is paid by insured. involves a joint Conventional insurance is guarantee scheme in based on to take material gain providing possible on behalf of other. indemnity or contingency. Takaful operation is based on the concepts of taawun (mutual help M.M Hussain (2011), Conceptual And Operational Differences Between General Takaful And Conventional Insurance, AJBM Vol.1 No.8 [23-28]
  • 17. Conventional Insurance Takaful In conventional insurance one Takaful does not party agrees to undertake the exchange risk risk of other party in exchange of premium and the other by way of contribution party promises to pay fixed payments made to sum of money to the first party operator which means on the happening of uncertain operator is not selling event with in a specific and participant is not duration. buying any risk coverage. M.M Hussain (2011), Conceptual And Operational Differences Between General Takaful And Conventional Insurance, AJBM Vol.1 No.8 [23-28]
  • 18. Conventional Insurance Takaful Investment of Funds - Investment of Funds - Conventional insurers may Takaful companies invest in such type of assets invest funds in interest that are strictly forbidden by the Shariah such as alcohol, free avenues and with gambling or pork the concept of Halal M.M Hussain (2011), Conceptual And Operational Differences Between General Takaful And Conventional Insurance, AJBM Vol.1 No.8 [23-28]
  • 19. Conventional Insurance Takaful Conventional insurance Takaful under Shariah companies invest large amount law, interest is in fixed income securities on forbidden, which rules their balance sheet in order to minimize the risks and the out the investment in variability associated with the fixed income securities. equity. M.M Hussain (2011), Conceptual And Operational Differences Between General Takaful And Conventional Insurance, AJBM Vol.1 No.8 [23-28]
  • 20. Conventional Insurance Takaful Under conventional Under Takaful contract insurance, policyholder have every policyholder has no right to know how the the right to know how premium are invested and from where the claims their money is originates. used, how the surrender value is calculated, the origin of claim settlements to ensure it is Halal. M.M Hussain (2011), Conceptual And Operational Differences Between General Takaful And Conventional Insurance, AJBM Vol.1 No.8 [23-28]
  • 21. Conventional Insurance Takaful Under conventional Under Takaful insurance, the insured forfeits premiums are his/her premiums on refundable along with termination of a policy any corresponding surrender value less administrative fees M.M Hussain (2011), Conceptual And Operational Differences Between General Takaful And Conventional Insurance, AJBM Vol.1 No.8 [23-28]
  • 22.  A Takaful Success Story
  • 23. 1984 – 1992 o Enactment of Takaful Act o Establishment of Syarikat Takaful Malaysia  1993 – 2000 o Introduction of competition with establishment of Takaful Nasional o Formation of ASEAN Takaful Group and ASEAN Retakaful International Ltd. o Takaful Malaysia & Takaful Nasional (now known as Etiqa Takaful) jointly developed a Code of Ethics for Takaful Industry (2000).  2001 – 2010 o Introduction of Financial Sector Master Plan which include enhancing Takaful operators capacity and strengthen the legal, shariah and regulatory framework. o Malaysian Takaful Association was established in 2002. o New licenses issued.
  • 24. Etiqa Takaful CIMB Aviva (formerly Takaful Nasional) HSBC Amanah Hong Leong Tokio Takaful (Malaysia) Marine Takaful Bhd Sdn Bhd Prudential BSN MAA Takaful Berhad Takaful Berhad Syarikat Takaful Takaful Ikhlas Malaysia Berhad Berhad
  • 25. New Takaful licenses to joint-ventures between Foreign Insurance entities and local entities
  • 26. Regulatory Bank Negara Authority Malaysia Takaful Law Takaful Act 1984 Shariah Shariah Advisory Takaful Industry Supervision Council (Regulatory) Shariah Shariah Supervision Committee (Operational) Product Notofication Product General (Launch and Guidelines File)
  • 27. Takaful Assets expanded to reach USD3.9 billion between 2005 – 2009  Takaful Industry contributed 1.9% of the Malaysia’s GNI  Family Takaful constituted 84.7% of total Takaful assets in 2009.  Net contribution increase to USD1.1 billion between 2005 – 2009.  Family Takaful contributions rose from USD11.70 in 2005 to USD30.60 in 2009.  General Takaful contributions rose from USD4.30 to 9.00 in the same period.
  • 28. Other Others Medical & Endowmen Investment Temporary 3% Health Linked t 12% 9% 17% (Education) 1% Mortgage 47% Other Endowmen t New Business 11%
  • 29. Malaysia’s Takaful industry is expected to continue to show strong growth underpinned by the following factors:
  • 30.
  • 31.  Bahrain, Kuwait, UAE, Qatar, Oman & Saudi Arabia
  • 32.  The region has one of the lowest penetration and density in the world
  • 33. GCC Premium Contribution by Country, 2010 Source: Swiss Re, Alpen Capital (August 2011) Kuwait Bahrain Oman 5% 5% Qatar 6% 7% Saudi Arabia 34% UAE 43%
  • 34. Percent Contribution, GCC vs. Global Markets, 2010 Source: Swiss Re, Alpen Capital (August 2011) GCC Wor Regi ld on, 0 Life, Mar 13% ket, Non- 0 Life, 42% Non- Life, Life, 58% 87% GCC Region World Market
  • 35. GCC Premium & Premium Growth (2006-2010) Source: Swiss Re, Alpen Capital (August 2011) Non-Life Life Growth 16,000 35.00% 32.80% 14,000 30.00% 1,787 12,000 26.50% 25.00% 1,595 10,000 22.10% 1,314 20.00% 8,000 1,203 14.30% 13.60% 15.00% 6,000 783 11,845 10,329 4,000 9,186 10.00% 7,099 5,470 5.00% 2,000 - 0.00% 2006 2007 2008 2009 2010
  • 36. GCC Premium Growth Forecast, 2010-15 Source: Swiss Re, Alpen Capital (August 2011) Non-Life Life Growth 40,000 25.00% 35,000 20.90% 20.20% 19.40% 19.60% 18.90% 20.00% 30,000 5,179 4,093 25,000 14.30% 15.00% 3,262 20,000 2,609 10.00% 15,000 2,112 28,454 1,787 23,882 10,000 20,137 17,073 5.00% 14,372 5,000 11,845 - 0.00% 2010 2011 2012 2013 2014 2015
  • 37. Large and young population, • with access to education, media and new technologies, will push the demand for financial products. Growing expatriate population • will drive health insurance. High and Rising GDP per Capita. Economic Diversification • GCC Countries have begun investing across varied sectors including manufacturing, retail, automobiles, tourism etc. Compulsory Insurance. High Savings Rate. Sharia Compliant Products.
  • 40.  Indonesia, Singapore & Brunei
  • 41. 1994 o Established PT Syarikat Takaful Indonesia  1995 o Established PT Asuransi Takaful Umum  2010 o Standardization of Takaful policy for fire and vehicles  As of 2008 – Takaful penetration is only 0.04% of GDP  Takaful premium rose 48 percent in Indonesia in 2010 to 4.5 trillion rupiah ($489 million), while Malaysia's market expanded 17 percent in the first seven months of last year to more than 10 times that size (Bisnis Indonesia March 2012).
  • 42. Hindu Catholics Others 2% 3% 3% Protestan ts Islamic Banking Deposit 6% Growth (USD billion) 5.8 6.2 Muslim 86% Religion 4 3.2 2.3 1.8 Median age: total: 28.2 years male: 27.7 years female: 28.7 years (2011 est.) Source: www.indexmundi.com
  • 43. JAKARTA: Assets of Islamic insurance industry in Indonesia grew 32% in 2011, faster than that of conventional insurance, thanking to robust business growth in the segment. Capital Market and Financial Institution Supervisory Agency (Bapepam-LK) recorded that assets of Islamic insurance in Indonesia was IDR9.2 trillion (USD1 billion) at end of last year. Meanwhile, conventional insurance including life and general insurance grew not more than 27% in 2011. Islamic-based insurance, or known as takaful, grew by 50% annually in average during the past five year. Takaful is insurance business holding to Islamic principles in its practices. Bisnis Indonesia - Islamic Insurance Assets Grow 32% On Strong Deman Oleh Anggi Oktarinda, Hanum KD March 22, 2012 08:41
  • 44. Buddhi Religion Christi an st Others 10% 13% 10% Muslim 67% Median age: total: 28.4 years male: 28.3 years female: 28.6 years (2011 est.)
  • 45. Religion Hindu Catholic 5% 4% Takaful commenced in 1995 Christian Taoist 10% 8% Buddhist Currently has 3 operators: HSBC 43% Others Insurance, NTUC Income, United Overseas 15% Insurance. One retakaful – Tokio Marine Muslim 15% No separate set of regulations for Takaful Opportunities mainly in housing sector Has plans to facilitate Takaful industry by tackling issues such as lack of Shariah- compliant assets and conflicting codes of supervision and tax treatments.
  • 46.  Pakistan, Bangladesh & Sri Lanka
  • 47. 1983 1992 2000 • Review by • Report by the • Insurance Council of Council of Ordinance Islamic Ideology Islamic Ideology defined the term on takaful on Islamic Takaful and system in Insurance provided for Pakistan System establishments of Takaful Operators
  • 48. 2005 2006 2008 • Introduced • Established • Established Takaful Pak-Qatar Dawoood Rules Family Family • Established Takaful Ltd Takaful Pak-Kuwait and Pak- Takaful Co. Qatar General Takaful Ltd • Established Takaful Pakistan Ltd
  • 49. Insurance penetration is only 0.8% of GDP  SECP plans to promote microinsurance.  Takaful opportunities, mostly in mortgage and auto insurance.  Biggest challenge: o Poor market capitalization o Lack of awareness o Lack of skilled HR o Limited investment avenues and retakaful options
  • 50. Takaful started with the establishment of Takaful operators in 2000.  As of 2010, there are only 6 Religion Others Hindu 1% Takaful operators compared 10% to 13 conventional insurance companies  Opportunities in housing loan insurance since many new housing projects and Muslim large young population. 89%  Biggest challenge: o Lack of awareness o Low disposable income
  • 51. Takaful started with the Population: 21,283,913 (July 2011 est.) establishment of Amana Takaful in 2002. Median age: total: 30.8 years male: 29.7 years  In 2006, Ceylinco Takaful female: 31.8 years (2011 est.) was established. Others Muslim  Upward trend in banking Christia 10% 8% n deposits and large young 6% population suggest good Hindu 7% growth opportunities.  Biggest challenge: Buddhis t o Lack of awareness 69%
  • 52.
  • 53. Sudan • Takaful started in 1979 when the Islamic Insurance Company of Sudan was formed. Egypt • Takaful began with the establishment of Egypt- Saudi Insurance House in 2002. Tunisia • Best Re was formed in 2008. Algeria • Salama Assurances Algerie was formed in 2007.
  • 54. Senegal • Sosar Al Amane formed in 2005 Gambia • Takaful Gambia Ltd. Was formed in 2008. South Africa • Takaful product were introduced in South Africa by Al-Noor Risk Solution in 2008, using the license of an existing insurance co. Kenya • There is also the Takaful Insurance of Africa established in Kenya but no further details can be acquired.
  • 55. The Takaful industry is expected to grow in Africa underpinned by the large and relatively young Muslim population. Muslim population is estimated to make up approximately 52%* of African population and the majority are within the 15-64 years Biggestgroup**. age Challenge: Lack of awareness and low disposable income *http://www.islamicpopulation.com/africa/africa_islam.html ** CIA The World Factbook
  • 56.  United Kingdom & Luxembourg
  • 57. Religions in the UK Hindu 1% Others 2% Christia n 71% None 23% Muslim 3%
  • 59.
  • 60. The biggest challenge in introducing and developing Islamic Financing is the creation of awareness.  At present, countries only become interested in Islamic Financial products because they want to trade with the oil rich middle-east countries.  In western countries, Islamophobia also poses a formidable challenge. Again, the spread of awareness on Islam’s true values and virtues.  But, there is a huge potential for growth in the future.  Malaysia, with its strong economic and political fundamentals, must ensure it stamps its mark in the world as the leader in Islamic financial products.