Malaysia: Insurance, takaful sectors to face slower growth

PETALING JAYA: RAM Ratings said it expects growth in the Malaysian insurance and takaful sectors to moderate in 2016 amid the challenging landscape and uncertainties in the financial markets that are anticipated to continue through the year.

In a statement yesterday, the credit rating agency said against its gross domestic product forecast of 4.4% for 2016, gross premiums are projected to expand about 5% for life insurance, 2-3% for general insurance and 4-5% for takaful contributions.

“Insurers and takaful operators were not spared the fallout from slower economic growth and subdued consumer sentiment in 2015.”

Last year, RAM said gross premiums in the general insurance segment edged up 1.7% year-on-year to RM15 billion, while life insurance premiums fared slightly better, advancing 5.4% to RM37.4 billion.

It said although family takaful continued to expand at 8% last year, growth in the general takaful segment eased 6%, ending the year with RM7 billion and RM2.3 billion of gross contributions, respectively.

Overall, RAM said the sector’s profit declined 13.8% as benefits and claims as well as commissions and management expenses outpaced the increase in premiums/contributions and investment returns fell amid a volatile market.

However, it said despite the likelihood of slower momentum in the near-term, the industry’s mid to long-term outlook remains favourable given the low insurance penetration rate, rising consumer awareness and greater efforts in product innovation and distribution.

“Insurers and takaful operators’ capitalisation levels and reserves remain robust and the industry is supported by a sound and prudent regulatory framework.

“Against this backdrop, we have maintained a stable outlook on the credit profiles of our rated insurers and takaful operators,” it noted.

Over the next few years, RAM said the operating landscape will evolve with regulatory-driven liberalisation.

It added that the de-tariffication of motor and fire insurance, to be implemented in phases beginning this year, bodes well for the sector as premiums will gradually commensurate with underwriting.

In addition, RAM said it expects the life and family takaful sectors to see greater operational flexibility as initiatives set out under the life insurance and family takaful framework are gradually implemented.

(The Sun Daily / 01 April 2016)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Malaysia: Slower growth for insurance, takaful sectors, says RAM Ratings

KUALA LUMPUR: RAM Rating Services expects growth in the Malaysian insurance and takaful sectors to moderate in 2016 amid the challenging landscape and uncertainties in the financial markets.

The ratings agency said on Thursday against its GDP forecast of 4.4% for 2016, gross premiums were projected to expand about 5% for life insurance, 2%-3% for general insurance and 4%-5% for takaful contributions.

“Despite the likelihood of slower momentum in the near term, the industry’s mid to long-term outlook remains favourable given the low insurance penetration rate, rising consumer awareness and greater efforts in product innovation and distribution,” it said.

RAM Ratings said insurers and takaful operators’ capitalisation levels and reserves remained robust and the industry is supported by a sound and prudent regulatory framework. 

“Against this backdrop, we have maintained a stable outlook on the credit profiles of our rated insurers and takaful operators. 

“Over the next few years, the operating landscape will evolve with regulatory-driven liberalisation. The detariffication of motor and fire insurance – to be implemented in phases beginning this year – bodes well for the sector as premiums will gradually commensurate with underwriting,” it said. 

RAM Ratings said the life and family takaful sectors would see greater operational flexibility as initiatives under the Life Insurance and Family Takaful Framework were gradually implemented. 

It pointed out these reforms might result in some short-term uncertainty for insurers and takaful operators during the initial adjustment period but they would be positive for the long-term growth and efficiency of the industry. 

In 2015, insurers and takaful operators were not spared the fallout from slower economic growth and subdued consumer sentiment. 

To recap, gross premiums in the general insurance segment rose only 1.7% (2014: 6.5%) on-year to RM15bil. Life insurance premiums grew 5.4% (2014: 7.7%) to RM37.4bil. 

Although family takaful continued to expand at 8.0% (2014: 4.4%), growth in the general takaful segment eased to 6.0% (2014: 13.3%), ending the year with RM7.0bil and RM2.3bil of gross contributions, respectively. 

Overall, the sector’s profit ebbed 13.8% as benefits and claims as well as commissions and management expenses outpaced the increase in premiums/contributions and investment returns fell amid a volatile market. 

(The Star Online / 31 March 2016) 

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Many Hurdles Of MDRI, Takaful Insurance

The Market Development and Restructuring Initiative (MDRI) is an evergreen package meant to prop Nigeria’s insurance sector, but so far the implementation has stalled the brilliant initiative, writes CHIKA IZUORA 

Chief Yemi Soladoye is the managing director of Riskguard-Africa Nigeria Limited, and one of the few operators in the Nigerian insurance sector that has contributed immensely to the development of insurance in the country.

He is the brain behind the MDRI concept and consulted for the National Insurance Commission (NAICOM) bringing into the industry initiatives and advises that if well implemented will certainly change the face of insurance in Nigeria.

But he told the LEADERSHIP at the weekend that he is not impressed with the outcome of the implementation process and regretted that one of the key impediment to the full blown execution of the project is the legislative restriction of the NAICOM in exercising some responsibilities.

After Soladoye and his team perfected the document, the NAICOM, under Fola Daniel, embraced it and even carried out a review of its operational guidelines with the desire to enhance the industry’s growth. The MDRI, was structured to raise the value of insurance contracts to about N1 trillion ($6.4 billion) from N300 billion by the year 2017 and also contribute about 3 per cent to the gross domestic product (GDP), boosting penetration increase to 22.5 per cent from 10 per cent. The MDRI projects to achieve N1 trillion premium income and has a four-year strategic plan and all of these were missed due to failure in the commencement of implementation.

Even though the NAICOM considered a review of its guideline, Soladoye is yet to come to terms with its implementation strategy and expresses concerns because the initiative has failed to achieve some of its projections in the first phase where a target of N1 trillion premium income could not be achieved.

He is canvassing that there should be a shift in the deliverables to make-up for the difference between the time of the strategy crafting and implementation. He, however, blamed operators for the seeming slow industry recovery which the initiative would have turned around.

“I will not blame the regulator because if you look at the law setting up the NAICOM, it is about regulation and supervision, and not market development. The NAICOM, in this case, feels that it has given the operators the strategy to develop and grow, but operators are neck deep in running businesses the old style; they are faced with the challenge of meeting the board’s and shareholders’ expectation and this makes it difficult for them to invest in future market developments like micro insurance and Takaful, and wiping out fake insurance institutions. They have not come together for united market development and whether we like it or not retail insurance is key,” he said.

He said that the MDRI expresses micro insurance as a key growth strategy and hoped that now that more distribution channels for commercial and micro insurance have been identified, the initiative is expected to bring some level of growth and development.

The initiative is remarkable in the history of the industry and it is also an evergreen thing and cannot be wished away as it has brought about many developments. It was envisaged that under the strategy, compulsory motor-vehicle insurance, which makes up most contracts, would remain at about 10 per cent by 2017, while life insurance would constitute 7 per cent, general business insurance 3 per cent and petroleum companies insurance 2.5 per cent.

Corporate Governance   Code Implementation, Takaful To The Rescue?

At a recent meeting of the newly constituted Insurance Committee, the NAICOM gave the indication that it will enforce the implementation of the Corporate Governance Code. The enforcement is to bring unification into its implementation in April. The implementation is coming 7 years after it was introduced which points to the fact that the industry is not disciplined when it comes to policy management. Since the introduction of the code, the NAICOM has not been firm on it, but has said that its enforcement would begin on April 1, 2016.

However, operators has said that the implementation had been ongoing but at various levels of compliance by individual companies. The director-general (DG) of the Nigeria Insurers Association (NIA), Sunday Thomas, told LEADERSHIP that its implementation will further bring sanity in the industry.

“I am aware that a committee is working with the regulator and if there is an agreement, then full implementation will start, but I can tell you that companies are observing the code just that the NAICOM is coming up with a strategy to ensure compliance,” he said.

The implementation decision follows the NAICOM’s announcement that underwriting firms in the insurance industry will no longer have a uniform capital base, just as it directed operators to recapitalise according to the risks they undertake.

On his part, Soladoye explained that the decision to ensure full industry compliance to the Corporate Governance Code will help to protect policyholders’ interest.

“When the implementation commences, we will have a Unified Corporate Governance Code in the country, else we have a ‘Kabiyesi’ sort of management,” Soladoye stated.

On the failure of the Takaful insurance to take root in the industry, Thomas expressed worry that misconception and the inability of operators to embark on an industry-wide enlightenment exercise has brought about its snail pace development. As part of the NAICOM’s ongoing pursuit to increase insurance penetration in Nigeria and increase the contribution of insurance to the national GDP, the need for Takaful Insurance was identified following a detailed research.

Takaful Insurance, according to the NIA DG, is a form of insurance which incorporates elements of mutuality and ethical finance considerations and is open to all people regardless of faith and background. Already the regulator has issued guidelines to provide regulatory guidance for Takaful Insurance in the industry with the desire of enhancing financial inclusion in Nigeria and to ensure Takaful Insurance providers are not disadvantaged. The guidelines for Takaful Insurance provide guidance on elements that are specific to the operations of a Takaful Insurance operator; they outline and clarify the framework within which Takaful Insurance operators are to carry out the Takaful Insurance business. However, these guidelines, which took effect from March 2013, have not prompted the operators to embrace the initiative.

Soladoye, however, expressed optimism that soon operators will take serious steps to develop strategies and begin the marketing of the product.

LEADERSHIP reports that Takaful Insurance is a form of insurance that is compatible with the principles of the Shari’ah (Islamic Law) and market survey undertaken by the NAICOM indicates a significant religious-based objection to conventional insurance.  A number of financial principles inspired by Shari’ah are shared by other Abrahamic faith. The Takaful Insurance is in consonance with elements of mutual insurance and also ethical financial management and is accountable to all insuring public regardless of faith.

The Takaful Insurance is based on two principles, Tabarru (donation/contribution), which is a donation covenant where all participants agree to mutually support each other and is the basis of participants’ contributions into the Takaful Insurance Fund. It also dwells on the Ta’awun principle (co-operation) which is the established Islamic concept of mutual assistance and is the basis on which participants willingly agree for the Takaful Insurance Fund to be used for the mutual benefit of all participants to meet eligible claims.

The key elements of the Takaful Insurance scheme include mutual guarantee which means that all policyholders agree for the pooled funds to be used for assistance in specified circumstances of loss, ownership of the fund which entails that the participants are the main owners of the Takaful Insurance Fund.

(Leadership / 07 March 2016)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Insurance: Takaful is not just for Muslims -Hassan Bashir

Hassan Bashir, Founder of Takaful Insurance of Africa, says the Kenya-based company's products can bring possibilities to many and are not exclusively for people of the Muslim faith.

The Africa Report: Why did you launch Takaful Insurance of Africa in 2011?

What is the difference between conventional insurance and Takaful?There was a need for the service. I have been involved in the insurance industry since 1997, and it was something that I had become aware of. For my MBA I researched customer behaviour across the Kenyan insurance industry, and what came out was evidence of dissatisfaction and a need for honesty and ethics in the insurance products and services. I came across a lot of people who did not have insurance, or if they did they only had the basic statutory amount. They said that they did not feel comfortable with some aspects of insurance – that it did not accommodate their religious beliefs – and some people said they felt conventional insurance was a bit like gambling.

The big difference is that conventional insurance is a risk-transfer model, whereas takaful is a risk-sharing model. In the case of takaful, it's more like a joint fund, where the company and shareholders are paid a portion of the premiums. The risk remains partly shared and collectively based on all those taking part in the scheme. At the end of the insurance period there is a payout, not a 'no-claims bonus', more of a dividend.

Why did you choose Kenya, which has a relatively small Muslim population?

I started in Kenya because I am Kenyan. This is the market I know – and because I saw there was a gap in the market here. I agree there are bigger markets, like Nigeria or Ethiopia, but that means there is potential to grow. Six months ago we opened an office in Somalia. We have made expressions of interest in Uganda, Djibouti and Tanzania, so we have big plans.

Is takaful only for Muslims?

No, not at all. Our products are not exclusively for people of the Muslim faith. We can serve anyone, and we do. Initially, people thought it was only for Muslims, but now around 15% of our client base is non-Muslim and we are growing.

Are people put off Islamic finance solutions by negative connotations of Islamism? 

Some people in our community are ill-informed, it is true. I've been asked – directly to my face – "If someone defaults on payments, will their hands be chopped off?" People are only like this because they do not know all the information, so it is our job to educate them. There are sensitivities, which I can understand, but I believe economic development will help change minds. Extremism thrives in spaces where there is poverty and a lack of education, and where people are desperate and have nothing to do and no means of earning a livelihood. But I believe that Islamic finance can bring possibilities to many people by helping them get employment and access to finance. Look at what we are achieving with the index-based livestock takaful. We are continuously educating [pastoralists] so that they understand that the cover is in line with their religious sensitivities and this is to cushion them against the harsh weather so that they sustain their livelihoods despite the droughts that may occur from time to time. In the long run, this will answer the question you asked about the negative perceptions about Islamic finance.

Do you think Kenya will launch a sukuk this year?

I am not sure if it will be this year, but I have no doubt it will happen soon. Kenya wants to become an Islamic finance hub in the East and Central Africa region, and it is well placed to do so. ●

(The Africa Report / 18 September 2014)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Big gains to be had in insurance and takaful for SMEs

The wheel of fortune turned for Dubai when Sheikh Rashid bin Saeed Al Maktoum took over the reins in 1958. Dubai took its fledgling steps towards success with the dredging of the Deira Creek, which had seen rapid silting-up during the early 1950s limiting the number of vessels it could harbour. Construction work was completed in 1960.

The rest, as they say, is history. Dubai set about creating for itself a prime position on the global map.

Today, the UAE in general and specifically Dubai, has firmly established itself as the trading and logistical hub of the Middle East, bridging trade routes between the East and the West with the expansion of its ports infrastructure. The emirate is an undisputed destination of choice as Middle East headquarters for multinational companies across diverse sectors including technology, food and beverages, consumer goods, and electronics. Dubai also hosts leading manufacturing and financial institutions and outsourcing services providers.

Somewhere along the line, these multinational companies in their race to gain from economies of scale have forgotten the smaller players who have been the real drivers of growth and catapulted Dubai and the UAE to great heights.

Interestingly enough, even in today’s technology-driven world, the small and medium enterprises (SMEs) remain the growth engines of the economy.

According to the UAE Ministry of Economy, SMEs currently account for 92 per cent of the country’s total registered companies, 86 per cent of the workforce in the private sector and 40 per cent of the GDP.

Sadly, the insurance and takaful industries have proved least effective in terms of penetrating the SME sector with appropriate coverage leaving it vulnerable to loss and closure.

The situation is indeed ironic. A service industry that began as a practice which was started by small groups of traders is today offering them ill-suited coverage at disproportionate costs in the very region of its birth. We must perhaps pause to remember that Babylonian (Iraqi) traders were among the first to begin the culture of distributing risks as far back as the second millennium BC.

For takaful and insurance providers the push towards big-ticket corporates has been a natural choice – as they provide tastier fare in terms of marketing effort – preferring to clinch and service one big client rather than closing deals for and servicing a multitude of smaller clients.

However, choosing this easy way out has cost the insurance and takaful sector dearly — it has missed out on a core segment of clients.

There is a dire need to rectify the situation, and with some innovation and practical thinking, insurance op

erators could be opening up a new market while supporting the small businesses to manage their risks more effectively.

Such products could include tailored coverage options for each trade class, sensitive but relevant pricing, as well as flexible financial limits to ensure the provision of adequate cover right through the seasons. Ultimately sales and policy maintenance automation is central to value creation for both parties, so wordings will need to be clearly laid out and highly adaptable.

Takaful and insurance operators would also need to step away from the conventional methods for marketing their services to small traders. The campaign should prioritise ease of understanding of the decision-makers, while taking up as little of their time as possible.

Circumstances today demand that the takaful and insurance industries step up and stay true to their raison d’être – to protect the most crucial part of the economy. With the future vision placing significant emphasis on the establishment of a globally dominant Islamic financial services hub, takaful providers must strive harder to offer appropriate products to SME businesses.

(The National Business / 14 September 2014)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Nigeria: Challenges, Prospects of Takaful (Islamic Insurance)

The National Insurance Commission (NAICOM), recently announced its plan  to  release the guidelines on Takaful or Islamic Insurance by the end of next month. Nnamdi Duru writes on the peculiarities of this highly specialised branch of insurance practice and the benefits 

The insurance regulator, National Insurance Commission (NAICOM) said it would soon put in place the necessary framework for the take-off of takaful insurance, a platform for the protection of lives and properties based on risk sharing in line with the principles and practice of Islam as against risk transfer as in conventional insurance.

Confirming this, Commissioner for Insurance, Mr. Fola Daniel, said: “By July, our guidelines for takaful will be ready.  So,  anytime from August and September, we should have a platform to do takaful, we will be in a position to issue licences to people to do takaful insurance not as a window.  So before end of September, we should be in a position to issue out licenses for takaful.”

Speaking on takaful, the commissioner said: “Takaful is not a product, it is a concept.  It is not about religion really. It is about a way of sharing risks and not transferring risks.  Takaful is a kind of community risk sharing, it is fantastic, people will take it.  It does not matter whether they are Christians or Moslems.”

Contrary to the situation where a few operators get approval to sell a few takaful products, the commission is thinking of creating a separate platform for companies to do takaful insurance as it is practised in other markets and not as single product offerings.

About Takaful

Unlike conventional insurance, takaful complies with sharia principles of compensation and shared responsibilities in the community. It has been expanded to cover general risks, health and family (life) plans for Muslim communities.
Takaful is commonly referred to as Islamic insurance because of the similarities between the contract of kafalah (guarantee) and insurance.  It is founded on the principles of cooperation and separation between the funds and operations of shareholders, thus passing the ownership of the takaful insurance fund and operations to the policyholders.

Muslim faithful  believe that insurance should be based on principles of mutuality and cooperation and this means shared responsibility, joint indemnity, common interest and solidarity.

In takaful, the policyholders are joint investors with the insurer (takaful operator), who acts as manager for the policyholders. The policyholders share in the investment pool's profits as well as its losses. A positive return on policies is not legally guaranteed, because in Islam, any fixed profit guarantee is equivalent to paying interest.

How it Works

Policyholders or shareholders agree to guarantee each other and instead of paying premiums, they make contributions into a mutual pool, creating a takaful fund.
The amount of contribution that each participant makes is based on the type of cover they require and their personal circumstances. As in conventional insurance, the policy or takaful contract specifies the nature of the risk and period of cover.

The takaful fund is managed and administered on behalf of the participants by a takaful operator who charges an agreed fee to cover costs. These costs include the costs of sales, marketing, underwriting and claims’ management.
Claims made by policyholders are paid out of the takaful fund and any remaining surpluses, after making provisions for likely cost of future claims and other reserves, belong to the policyholders or shareholders of the fund and not the takaful operator and may be distributed to the participants in the form of cash dividends or distributions, alternatively in reduction in future contributions.
Peculiarities

Some of the peculiarities of takaful insurance are outlined below:

Contributory Premium

In conventional insurance, the customers pay premium in return for the insurance protection.  It is not so in takaful insurance.  In this case, policyholders make contributions equitable with the risks they are bringing into the pool.  This is different from the premium which is based on ratings calculated by underwriters in the case of conventional Insurance.

Investment
Investment of takaful funds is done in compliance with sharia law which prohibits gambling and profiteering and consumption of alcohol.  In addition, the funds should not be invested into economic activities that negate Islam and sharia,  including brewing alcohol, etc.

Profit/Loss Sharing

In takaful, policyholders are owners of the company and in that capacity they are entitled to share part of the profits or losses made by their company.  This is contrary to conventional insurance where policyholders are just customers who buy cover while shareholders share profit or loss as the case may be.

Claims
Claims in takaful are usually paid to those unfortunate policyholders/shareholders who suffer some insured losses within the period of cover.  They are compensated from the pool and reinstated accordingly. Claims experience is not disturbing as the volume is not such that would give any insurer sleepless nights but the problem lies in the frequency of usually small claims.

Retakaful or Reinsurance

Sharia principles apply to takaful as much as it applies to retakaful.  The reinsurance contract, for Islamic companies, must be contracted in conformity with the sharia.
There is need for strong and credible retakaful operators to assist the growth and expansion of takaful business globally.  The shortage of retakaful capacity and the lack of companies in the market currently present great challenge to operators.  The challenge is to have a large enough takaful market to justify retakaful business.
In response to this challenge, sharia scholars allow takaful operators to reinsure conventionally when no retakaful alternative is available, although retakaful is strongly preferred.

Takaful Risks

One of the greatest challenges that the takaful operators face worldwide is the rating system.  There is yet no scientific method or model for rating risks in takaful insurance.  In conventional insurance, there are standard rates for fire, motor, life and other lines of business prepared by actuaries. This is not available in takaful.
Also,  the high rate of default by beneficiaries of takaful and lack of efficient risk management tools to eliminate fraud and other risks are among the challenges.  There is also the  absence of an effective risk management tool which can effectively eliminate fraud and other risks in the system as well as  the absence of reinsurance capacity for takaful insurance.  In addition, there is   the absence of credit information in the market and moral hazards.

Prospects

Speaking on the prospects of takaful insurance, the Assistant Managing Director of Underwriting-Sherikan Insurance and Reinsurance Company, Sudan, Mr. Omer Elfarowg Ahmed said the economy would benefit from the attendant accumulation of huge micro-finance fund and expansion of the micro-finance infrastructure.

The market regulator’s job, according to him, would be simplified when takaful market grows,  while legislations on takaful and insurance generally would improve significantly.

Takaful as well serves as a guarantee to credit providers just as policyholders benefit from loss prevention services put in place by service providers and share in the surpluses recorded at the end of the accounting period.
The system is also likely to reduce insurance costs and economic waste and help to alleviate poverty and increase the level of corporate social responsibility of the insurance industry.

Takaful operators have expanded the scope of coverage to livestock insurance, fire and burglary, motor, agricultural and other products.  They encouraged beneficiaries to form industrial unions and cooperative societies to be eligible to participate.
The operators have also encouraged the respective Central Banks in African countries to maintain up-to-date information on beneficiaries of takaful and micro-finance credit.

If the necessary platform is put in place and if would be operators do their home-work well, takaful may hold the aces to deepening insurance penetration in the country.

(This Dyas Online / 27 June 2012)

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Alfalah Consulting - Kuala Lumpur:
www.alfalahconsulting.com
Islamic Investment Malaysia:
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