Takaful is a Shariah-compliant alternative to conventional insurance. In the present age, the need and significance of insurance cannot be overlooked, but the present rules and practices utilized under insurance are against the teachings of Islam.
Islamic scholars have presently deliberated over this matter for many years and devised the concept of Takaful. Takaful business is based on a huge pool of finances, where a great number of clients are contributing for the protection and rehabilitation of the few unfortunate participants who suffer any losses, some go through unpleasant tragedy or an incident. Takaful funds are sufficient enough to complete the requirements and commitments of such unfortunate participants. This financial pool is treated with utmost transparency under the supervision of Shariah rules.
Takaful rules were introduced during 2012, permitting the conventional insurers to attain authorization under these principles before commencing their window Takaful operations, enabling the conventional insurers to offer Shariah-complaint products through these windows in addition to the conventional products, subject to the conditions that window operations are segregated in all respects counting the capital.
However, with resolution of the dispute during May 2014, Securities and Exchange Commission of Pakistan (SECP) granted Window Takaful authorization to five entities during the FY2015. The SECP specified growth rate conditions for life insurance and family Takaful illustration for year 2014 whereby the life insurers and family Takaful operators use 3.0 growth rate conditions to demonstrate projected advantages to the potential life insurance or family Takaful policyholders.
Presently, there are 2.0 Takaful firms offering life Takaful services like Pak-Qatar and Dawood Family Takaful. Three Takaful firms in the country are offering non-life or general Takaful services.
Today, the penetration of Takaful in the country has reached 12 percent in Banca sector, while the overall penetration is almost 10 percent of the private sector.
In the life insurance business, State Life Insurance Corporation, being a government entity, has the exclusive rights to retain 60 percent of the market share. The rest of the 40 percent can be acquired through the other private firms. The Takaful market is still in a formative stage and market projections predict growth rates between 15 percent and 20 percent over the next 10 years, reaching US$7.4 billion in premium by 2015. With challenges around client service and productivity, technology can enable this growing industry to overcome its formative stage.
As Pakistan is among the major 10 most populous states globally in promoting Islamic way of banking and related products this makes it a very fertile market for Takaful, one with some interesting challenges. Takaful is the latest ‘wave’ in financial protection.
India, a much larger neighbor, has an insurance penetration of 4.8 percent, against Pakistan’s 0.8 percent, and its insurance density is US$38.40, against Pakistan’s US$5.90.
Financial services in Pakistan
It is recorded that about 100 million adults in Pakistan do not have access to formal and regulated financial services. This number accounts for about 5.0 percent of the world’s unbanked population, which stands at 2.0 billion. Having a formal and regulated transaction account opens access to other financial services like payments, savings, insurance and credit; all of which can assist citizens better manage their lives and decline poverty.
Global general Takaful
The life/family Takaful segment accounted for almost 60 percent of the market share during 2014 and is predicted to reach US$20 billion by the end of 2019. Life, medical and health, accident, and education plans comprise an important portion of life/family Takaful product segment.
The rising awareness among Muslims about the advantages of life insurance is encouraging the use of financial products that follow Shariah rules. This in turn is offering opportunities for overseas vendors to partner with insurance firms offering Takaful products and help increase their market reach.
I can foresee that within the next five years, the Takaful business would take over 60 percent of the total insurance industry in Pakistan despite in the 191.71 million population of Pakistan, the insurance penetration in the country has only stood 0.7 percent, over so many years.
The worldwide growth of Takaful business is nearly 28 percent per annum, while the growth of insurance is only 8 to 10 percent.