Takaful insurance is common in most of the Muslim world, but what is its potential in the UK? Greg Becker looks at one of the most developed takaful markets - Malaysia.
The annual World Takaful Report by Ernst and Young tracks the fast-growing global takaful market. Global premiums were $8.3bn in 2010, 19% larger than the year before.
While Saudi Arabia has the largest market, Malaysia – which has seen a combined annual growth rate (CAGR) of almost 30% since 2005 – is the second largest and one of the most developed markets, with premiums of $1.44bn in 2010.
Operations began in Malaysia in 1985 (after the issuance of the Takaful Act in 1984). Currently there are 12 operators, with two foreign and two local retakful (reinsurance) operators, all using the hybrid or combined model. While takaful can cover life, health, property and motor, 77% of takaful premiums in Malaysia in 2010 were estimated to come from life and health products with characteristics that would be very familiar to those in the UK market.
Mutual insurance companies have been operational in the UK for more than 100 years, and there are still more than 50 mutuals. Many others began as mutuals, but have since demutualised, Prudential being an example. The similarities in the founding philosophies of mutuals and takaful operations can be seen in the parallels between Prudential’s mutual roots and its Malaysia-based takaful operation, Prudential Takaful BSN.
While some may find it uncomfortable to remember how some of the earliest mutuals had religious roots, this is often largely irrelevant to the modern policyholder who is more likely to base his or her decision on price and coverage.
And, following numerous financial scandals in recent years, could mutuals and ‘mutual-like’ organisations have an added appeal if they are seen to be giving a fairer solution?
Some researchers believe there were 2.87m Muslims in the UK in 2010. This number is expected to rise to more than 5.5m (more than 8% of the population) by 2030. This could be the foundation for a meaningful market segment.Unfortunately, not every Muslim utilises takaful. In Malaysia, a developed market with a substantial Muslim population (61%), 22% of the population uses Islamic finance products and 15% uses takaful.
Projected takaful sales in the UK may or may not entice entrants when simply considering the Muslim population, but could the principles underlying a takaful policy resonate among non-Muslims? Mutuals found a niche in the UK. Could takaful providers compete in the same segment?
Greg Becker is product development actuary at RGA
