TAKAFUL & RE-TAKAFUL By Sutan Emir Hidayat

IFN, April, 2013. Malaysia and Indonesia are seen by many experts as two Takaful markets with plenty of opportunities to grasp. This is due to strong growth of the Takaful industry in both countries. The Ernst & Young World Takaful Report 2012 concludes that both countries, along with Brunei, recorded around US$2 billion gross written contributions (GWC) with a 28% compound annual growth rate (CAGR). The figures are convincing enough to point out that in addition to the GCC; the two countries are important markets for the Takaful industry. Some even predict that they could be the next primary hubs for the Takaful and re-Takaful industry, given the fact that the ASEAN community will be effective in 2015.

Malaysia is a relatively developed market with a high ratio of average GWC per operator driven mainly by the Family Takaful business line. Up to 2011, Takaful operators in Malaysia in general still had a better combined operating ratio than their conventional counterparts. This indicates bett er underwriting practices. Exploring the opportunities in General Takaful should be considered by Takaful operators in Malaysia to boost their performance. On the other hand, Indonesia, despite being the largest Muslim state in the world, still has a relatively low insurance penetration rate (1.7% in 2010). Limited ranges of micro- Takaful products for low income people  in the country and a limited awareness of the Takaful concept and of insurance in general are among the reasons why the penetration rate is still relatively low in Indonesia. Therefore, developing Takaful products that suit the low income market and launching an awareness campaign should be the focus of Takaful operators in the country to improve their performance.

“Improvement in regulatory frameworks will create better financial stability and higher consumer confidence”

On top of the above, support from the regulators in both countries is necessary.The establishment of separate regulatory frameworks for Takaful is expected to accelerate the growth in these markets. Improvement in regulatory frameworks will create better financial stability and higher consumer confidence.

Sutan Emir Hidayat is a senior lecturer and academic advisor at University College of Bahrain. He can be contacted at sutan@ucb.edu.bh

From: Islamic Finance News, 2013