Innovation key to growth for takaful

  • Business
  • Saturday, 08 Aug 2009

THE need to develop innovative products that match or better conventional products is crucial for Islamic insurers to expand market share, say takaful players.

According to Syarikat Takaful Malaysia Bhd group managing director Datuk Hassan Kamil, more innovative products as well as transparency in pricing and benefits are needed to ensure sustainability of the takaful industry.

“We also need more effective and efficient distribution channels. This will ensure that we can reach out to more consumers. In addition, savings (as a result of the efficient distribution channels) will be passed on to consumers,” he said.

Hassan said the local market had become more competitive with the recent lifting of equity ownership of up to 70% for foreign participation.

The takaful industry recorded double-digit growth last year despite the global downturn, registering 18% and 20% rise in net contribution and total fund assets, respectively.

“It is considered a mature market with well-tested Islamic business models such as the mudarabah, wakalah and hybrid models,” Hassan said.

He said takaful players in Malaysia were well-positioned to expand to markets with high Muslim populations such as Indonesia, the Phillipines and China.

“In terms of sophistication and market penetration, Malaysia has far exceeded countries in other parts of the world. The Middle East is also looking to us for training and education,” he said. Based on these observations, Hassan said Malaysia could position itself as a global leader in the business.

According to MNRB Holdings Bhd’s Islamic insurance arm Takaful Ikhlas Sdn Bhd executive vice president and chief operating officer Wan Mohd Fadzlullah Wan Abdullah, bancatakaful (takaful products distributed by banks) had shown tremendous growth during the last several years.

“However, to ensure demand for bancatakaful, products must be superior in comparison to bancassurance products,” he said.

Wan Mohd Fadzlullah said one of the challenges faced by the industry was the lack of human capital as well as syariah scholars who have industry experience.

“However, this problem should ease given the rise in educational centres in Malaysia offering takaful courses,” he added.

MAA Takaful Bhd chief executive officer Salim Majid Zain concurred with Wan Mohd Fadzlullah’s view that the development and retention of human capital was crucial for the future growth of the takaful industry.

Besides that, the knowledge of wealth planning was also important as it would give added advantage in facing new and more sophisticated clients, Salim noted.

“High net worth clients not only ask for information on takaful products but expect consultants to provide advice on financial planning,” he said.

Salim said an interesting feature of the takaful industry was that the greater the number of players, the better it was for the industry.

“Larger and more specialised risks can be taken by the takaful industry because players will be able to share the risks among themselves, in line with their cooperative nature,” he said.

According to Salim, the takaful industry would be able to manage risks better with a proliferation of new retakaful players.

“In Malaysia alone, including Labuan, there are several new players, some of which are world leaders in the reinsurance business,” he said.

Meanwhile, Wan Mohd Fadzlullah stressed that with the limited number of retakaful companies in the market, the growth of the industry would be restricted as takaful operators need retakaful companies to accept bigger risks.

He also said it was crucial that the statutory minimum paid-up capital for takaful operators be progressively increased in order to equip them with sufficient capital base to strengthen their capacity to grow and absorb greater risks.

“An enhanced capital base for takaful operators will also improve their ability to compete effectively in the domestic market and at the international level. Being undercapitalised limits their capacity to underwrite different classes of insurance,” he added.

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