Growth of Takaful and its distribution are highly dependent on three intertwined factors: target market, distribution channels and products. Each audience requires a slightly different strategy and approach, each with their own special protection requirements.
Life Takaful dominates the Takaful landscape and this has therefore created a highly retail focused distribution channel. Currently the greatest driver in the Takaful space is under penetration. Even in a relatively developed market such as Malaysia, Takaful penetration only amounts to less than 1% of GDP. The penetration rate also remains low in regards to the premium and general sectors of the Takaful market.
Growth in the Takaful market is currently driven by an increasing supply of products and innovation brought to the market by a rise in the number of Takaful operators. Currently, the demand for Takaful appears to outstrip supply. This is primarily due to the rapid increase in the wealth of the Takaful demographic and as a result a greater need for coverage to protect that wealth gain. However, the ethical dimension of Takaful is appealing beyond the Muslim target audience, further adding to this growth.
According to Azim Mithani, CEO of Prudential BSN Takaful: “We need to rise up to this growth challenge. I don’t believe that we necessarily need to benchmark ourselves against insurance operators. However, a Takaful benchmark needs to be adopted.” Takaful participants should not expect any less from their Takaful policy than they would from a conventional insurance contract. By addressing the needs of customers and participants, Takaful need not compete. We all need protection and coverage, and as a result, parallel products will emerge to compete with the products offered by the conventional industry.
A key enablers for the Takaful industry going forward will be greater professionalism. Agency staff and bancaTakaful providers must be able to provide a fact-based, knowledge-driven approach based on the needs of each individual. Equipping personnel with the required Shariah knowledge is central to this.
The agency model is essential in attracting higher net worth individuals. This will eventually be overcome as the bancassurance model gains traction. However this will require a greater level of harmonization between banking and insurance operators.
The BancaTakaful model offers a greater variety of opportunities as it can create partnerships allowing the selling of products through telemarketing and in-branch distribution models that can be targeted to certain markets and products. This model will however require greater regulation to be fully adopted in emerging markets to prevent abuse.
Force of numbers is always going to be key to any business-driven enterprise, and the agency-driven approach is central to achieving this. The BancaTakaful channel is proving to be the fastest-growing channel within Takaful, mirroring its conventional insurance growth in emerging markets. The popular belief is that the main market will begin to turn towards the bancassurance model as a matter of convenience. Brand loyalty will also begin to play an increasing part in Takaful uptake as simplicity in bundling Takaful solutions with existing banking products from the same company through cross-selling makes for easy payment and claims.
Hybrid distribution models are also on the rise. A hybrid agency model is a combination of an agency’s business model utilizing a banks customer database. The hybrid model also proves to be a less intrusive method, as a customer is not forced to divulge important financial information as their records are already held by the bank.
Takaful operators are gaining an ever more impressive array of products and pools to attract a wider range of customers. Call centers, customer relationship management databases and point of sale systems are playing an increasingly large role in making product uptake convenient and easy to deliver to the customer. This sophistication is central to providing an equal service to the conventional insurance industry as well as allowing for a greater distribution. — SW