For almost two decades the Takaful industry has demonstrated tremendous growth and strong performance. This strong growth momentum is expected to continue even in the uncertain near future, underpinned by the rising affluence of its customers and strong economic fundamentals emerging from Takaful’s emerging market heartlands.
In this drive towards expansion and growth, questions of Takaful’s corporate social responsibility (CSR) towards its shareholders and participants continue to emerge. Chakib Abouzaid, the CEO of Takaful Re, suggests that the differences between conventional insurance arise in its business model and different objectives.
Conventional insurance is focused on maximizing profit for the shareholders. Takaful has a different objective and underlying CSR. According to Chakib, “Takaful companies must maximize profit for their shareholders, however; they must always have their mind on the outcome of their surplus distribution and to maintain solidarity among the policyholders as one of the central pillars of the CSR.”
It is only in the developed markets of Southeast Asia that there is an involvement of CSR. In the Middle East the industry is still in its infancy for such considerations. Ismail Mahbob, the president and CEO of MNRB ReTakaful, stated that conflicts of interests will always exist. Conventional insurance companies are very much profit motivated. Takaful is a move into uncertain social mechanisms and that ultimately you need to create a balanced approach towards your expectations.
Mohammad Rais Abu Noh, the president and CEO of Labuan Reinsurance stated that this issue arises from the lack of profit commission in Takaful and that this is not available due to the surplus distribution, while Tobias Frenz, the CEO of Munich Re ReTakaful said that the majority of Takaful companies around the world are for-profit, stock companies saying that “profit is the whole reason for them being around.”
Takaful companies are using the optimal business model for them to compete on a level playing field. In Malaysia, the regulators are specific on this matter. “Your profit has to be reasonable and your profit cannot be more than that which you give your participants” said Frenz, offering the point up that it is “regulation that helps keep this drive for profit at bay.”
Finally, Dawood Taylor, the senior regional executive at Prudential Corporation Asia summarized the point by adding that the IFSB has declared modern day Takaful as a hybrid, a combination of an institution of shareholders and social responsibility in terms of managing the pool on behalf of the participants. Taylor continued by stating that the “modern day Takaful concept can only work as a commercial entity” after all there is nothing wrong with making profit in Islam.
Ultimately, when it comes to CSR and profit distribution there is no right or wrong answer, it is simply a question of balance. – SW