Political proposals to transform Britain into a leading Islamic finance hub would open up a lucrative untapped market to Lloyd's players and beyond, according to industry analysts.
Following the government's launch of a group designed to promote Islamic finance on British shores, market commentators have argued the move could prompt a wave of interest from the UK insurance industry.
Shariah-compliant insurance companies are set up as a mutual, with the policyholders bearing the risk, rather than the insurer. In addition to this, the firm is overseen by a board of a minimum of three scholars, who make sure the structure complies with Sharia principles.
These firms are also bound to make ethical investment, excluding industries like adult entertainment or weapons manufactory.
Noel Lourdes, executive director at global Islamic finance advisory firm Amanie Advisors said the emergence of an Islamic insurance market depends on a series of factors such as the government not taking the lead in transacting activity, lack of talent in the industry and lack of Shariah-compliant long term fixed income products so the takaful industry can invest in sterling and other currencies, among other factors.
Lourdes also argued a takaful market boom would depend on the way it is marketed.
He said: "A joint venture can bring scale and balance sheet especially in the Islamic reinsurance market. While most Muslim countries are underbanked, the insurance penetration is even worse with some [Gulf Cooperation Council] countries having less than 1% of the population insured. This is an enormous opportunity. However, for takaful to grow it must be marketed to non-Muslims too."
Colin Gleeson, director at Deloitte, said takaful might struggle to get traction in the commercial lines space.
He said: "It appears that Islamic insurance has typically taken off in personal lines products rather than in the commercial space, as demands for that kind of product is somewhat less.
"This it is not to say that it won't grow over time but it certainly has more difficulty getting traction in this space, not just in the UK but the Gulf and part of Asia."
"The question is the size of the market available and the degree to which the business will be managed and underwritten in local markets and to what the degree it will come out into international markets [such as London]."
