Takaful is a Sharia-compliant insurance product based on the Islamic principle of mutual assistance. Policyholders contribute money to a common pool of funds managed by a Takaful management company, which is then used to pay for claims made by the policyholders. The surplus amount is used for Islamic investments, which earn profits for the policyholders. At the end of the Takaful term, the excess amount is returned to the policyholders, along with the profits earned through the Islamic investments.
The Global Takaful Market is growing at a CAGR of 16.39 percent from 2014-2018, mostly due to rapid economic growth in emerging economies like Malaysia.
Takaful Market Breakdown
Takaful insurance products generally take one of two forms—life/family Takaful and general Takaful, the former making up a majority of the market.
While regions in the Gulf Cooperation Council (GCC) hold the maximum potential for growth in this market, a surprising up-and-comer is the Takaful Market in Malaysia, which holds 20 percent of the market and is projecting a CAGR of 19.14 percent from 2014-2018. The growing economy and relatively low penetration of insurers is making Malaysia a hub for eager Takaful providers.
TechNavio analysts have identified some key trends contributing to growth in both the Malaysian Takaful Market as well as the global market.
Geographic Expansion
Increasing importance of Islamic banking around the globe is expanding the reach of Takaful insurers. Large financial Institutions such as Malayan Banking Berhad, otherwise known as Maybank are seeing an opportunity for expansion of Islamic banking services internationally. Maybank operates through a wide network of over 2,200 offices in 20 countries, catering to 22 million customers and had a market capitalization of US$77 billion and recorded revenue of US$1.84 billion in 2012.
Governments in geographies such as Europe, the Americas and Russia are seeing the value in offering Takaful. Partnerships with banks will present new and readily available distribution channels, which could open a gamut of new opportunities for takaful operators to develop Sharia-compliant bancassurance products.
Developing Technical Expertise
Up until recently, there has been a marked lack of technical expertise and product innovation in developed Takaful markets. However, potential markets such in the Asia Pacific and GCC areas region have low insurance penetration, which means that the opportunity for growth in these regions is immense. Insurers in these areas are striving to obtain technical expertise that can help in innovating Takaful products suited to the modern needs of their clients.
New Regulations
Major changes to the market are underway, as regulatory authorities plan to introduce a new set of laws for Takaful. According to new regulations in some of the GCC countries, Takaful will not be allowed to be delivered through Islamic windows—instead it will be delivered through standalone insurance companies. Also, insurance companies have been asked to separate general and life/family Takaful offering, which will expand on the number of products offered.
Before these new regulations, Takaful products had been marketed with minimum capital requirements. Changes in the regulatory framework could reshape the Takaful market, spurring mergers as firms try to meet requirements for full-fledged Islamic units. The new regulations are expected to allow five years for insurers to comply with requirements, but these operational transformations will prove to be crucial for the market during the forecast period.
For more insights, please view our Global Takaful Market 2014-2018 report and Takaful Market in Malaysia 2014-2018 report.
