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Islamic insurance market has ‘untapped potential’ despite global growth, says report

Out-Law News | 16 Sep 2014 | 12:22 pm | 2 min. read

The growth of the Islamic insurance (takaful) market globally is expected to reach $20 billion by 2017, according to a new report.

The gross takaful contribution of the Gulf Cooperation Council (GCC) countries alone is estimated to reach around $8.9bn this year, from an estimated $7.9bn in 2013, according to the ‘Global Takaful Insights 2014’ report by Ernst & Young (EY) (16-page / 768 KB PDF).

The report projected a “continued double-digit growth momentum” of the global takaful market of around 14% from 2013 to 2016. In addition, the report said there is “continued buoyancy” in the estimated $2 trillion global Islamic finance markets.

“The GCC countries and Association of Southeast Asian Nations (Asean) markets are likely to maintain their current growth path in the next five years, subject to their economic growth,” the report said.

According to the report, the global takaful industry “continues to gain market share across several high value rapid-growth markets, which still show significant untapped potential”. Within the Gulf region, Saudi Arabia accounts for the majority of the total gross takaful contribution at 77%, followed by the United Arab Emirates (UAE), which accounts for 15%. “The rest of the Gulf countries account for just 8% of gross takaful contributions,” the report said.

Saudi Arabia is likely to remain “the core market of Islamic insurance business”, with around 48% of global contributions, while the UAE Qatar “and more recently Oman, continue to set the pace for the development of takaful products in the Middle East and West Asian markets,” the report said.

Turkey and Oman are new entrants to the takaful industry, “offering strong first mover advantage to takaful operators”, the report said, “whereas established takaful markets in Africa like Sudan, offer great prospects for efficient replication across new African markets endorsing Islamic finance”.

The senior director of EY’s Global Islamic Banking Centre Abid Shakeel said: “The continued strong growth of the much larger Islamic banking sector will help sustain the progress of the takaful industry. The rapid-growth markets, particularly UAE, Malaysia and Indonesia, are key markets to watch as they improve on market practices, widen distribution channels and strengthen the regulatory front.”

Shakeel said: “The low insurance penetration rates, on average just 2%, across key Muslim rapid-growth markets signify a huge opportunity and growth potential for takaful products, particularly in the areas of family takaful and medical insurance.”

However, the report said that “given the strong underlying market opportunities, a competitive market environment and strategic regulatory reforms, it is vital that the takaful industry addresses key challenges to achieve a sustainable takaful ecosystem”.

The report said: “Among the GCC countries, competition, operational issues and the lack of qualified talent continue to be impediments. Profitability of takaful companies has been threatened not just by undifferentiated strategies but also by the lack of uniform regulations that will allow them to operate across different models. Undifferentiated business strategies mean most takaful operators are competing intensely and this is likely to squeeze out the under-performers.”