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Takaful industry outlook

Published on 6th July, Edition 27, 2015


Presently, the Takaful industry has boosted considerably as a viable Islamic alternative to conventional insurance. Though the worldwide Takaful industry has registered healthy growth, the progress of related regulatory and supervisory frameworks has not kept pace and varies significantly between main Takaful markets.

In several main states, the Takaful market is becoming increasingly over-crowded with a number of local and foreign firms competing for a small pool of risks to cover. Industry-wide profit margins have been under pressure and formerly well growth rates have started to decelerate.

Experts reveal that in the Gulf Cooperation Council (GCC), UAE has well depth and breadth of products, and gives the most diversified suite of general and family takaful products. Experts noted that since 2008 the GCC region registered a maintain insurance and takaful industry progress with buoyant presentation in various states such as UAE (CAGR of 11.75 percent and 18.5 percent for the insurance and takaful sectors respectively) with the takaful industry recording a faster progress rate in the period 2008 to 2012. This is majority attributed to the implementation of fresh regulations with compulsory motor and health insurance programs.

The worldwide takaful insurance market has showed remarkable double digit development with gross takaful contributions touching US$18.3 billion in the first half of 2013. Experts also mentioned that the key challenges faced by the worldwide Takaful industry are the lack of added value from the Retakaful industry leading to an over-representation of conventional reinsurers in the market. However, present growth and the emergence of latest sizeable Retakaful firms is an opportunity for the entire takaful industry to have an integrated approach, and move to the next step.

As the international Takaful industry is set to increase more, predicted to hit the US$ 17 billion mark in 2015, a lot more extra participation and leading role is required in the Retakaful industry. To meet the demand, Retakaful firms must move from a follower to a more leadership position. Another challenge facing the industry going forward would be to grow main line development phases while also focusing on technological productivity. The evolving regulatory landscape, pricing dynamics and technological productivity will also be main factors that would shape the direction of the industry at this important juncture during this year and beyond.

In Pakistan, the growth in demand for Islamic insurance over present years has seen a proliferation of new firms providing Islamic insurance products in these markets. According to the present applicable laws in the country, Takaful firms (Takaful Operators) are the financial institutions incorporated as Limited firms registered with the Securities Exchange Commission of Pakistan (SECP) and licensed from Insurance Division of SECP. They are granted consent to conduct family and general Takaful business in the country for Life and Non-life insurance respectively.


Furthermore, the Takaful industry is still in a formative phase and market predictions project progress rates between 15 to 20 percent over the coming 10-year, touching US$7.4 billion in premium by 2015 in Pakistan. With problems around client service and productivity, expertise can enable this increasing industry by its formative phase. The country is among the main 10 most populous states globally. This makes it a very fertile market for Takaful, one with some interesting problems.

Takaful industry is the latest wave in financial protection. The country saw its first Takaful operator, in the General side, establish during 2006. Takaful is not just another instrument for risk mitigation and financial protection. Rather, it is a system which works as a source of good for those that use it and the community at large. Equipments like these are critical for developing states, particularly those seeing rapid economic development. Rising personal debt, the widening split between the haves and have-nots, and other such problems frequently plague those in rapidly increasing developing states.

Position in Pakistan

To truthfully comprehend the opportunities for Takaful industry in the country, we need to see where the current insurance industry stands. The best way to recognize this by comparing it with other states which shares various traits with Pakistan. 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. These values make it very clear that there exists an important gap in the country for financial protection instruments. As we know, attaining predictions is not as easy as formulating them.

Recently, Securities Exchange Commission of Pakistan (SECP) has accepted a 4-member Shariah advisory board to oversee Islamic financial products in Pakistan, as the regulator looks to address credibility concerns, which still haunt the industry. It is predicted that the new board would be instrumental in harmonizing the Shariah-related business, operations and structure of the tools of the Islamic capital market in the country.

The SECP first announced it would set up a 9-member supervisory board back in 2013, but since then the Government of Pakistan has overhauled its attempts to promote the industry. Oman’s central bank organized a Shariah supervisory board in last October, with Bahrain and UAE also developing a same state-level approach to the industry.


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