In its first global Family Takaful report, Milliman, one of the world’s largest independent actuarial and consulting firms, has projected a 250% increase in global Family Takaful contributions within the next five years, reaching an estimated US$4.3 billion by 2015.
Milliman estimates that global family total gross contributions in 2010 stand at US$1.74 billion (an increase of 24% on 2009’s total). The report identified three primary growth markets: Southeast Asia represented 30% of this growth between 2009 and 2010 (US$1.27 billion); while the MENA region grew at 8% over the same period (representing US$429 million) and finally South Asia (Bangladesh, Pakistan and Sri Lanka) grew by 45% (to represent a total of US$41 million).
Of those totals, Takaful still remains a drop in the ocean of the wider conventional industry. More tellingly, the current life insurance premiums of all Muslim countries combined currently account for a mere 0.72% of total world premiums, suggesting tremendous growth potential for the industry as a whole.
The report also forecasts that Indonesia will continue its growth trajectory and is expected to have a similar market share in the Southeast Asia region to Malaysia by 2015.
Family Takaful to lead
With bottom line profitability on the General Takaful front facing significant competition, Family Takaful is seen as a long-term and sustainable proposition; with strong bottom line expectations, higher profit margins and the potential for surplus sharing making it a more viable long-term proposition.
The Milliman report also focuses on their Family Takaful Survey where they identify several key areas as the focus for future Family Takaful developments. These include: products, Wakalah fees, asset classes, surplus distribution, regulatory environment regarding distribution and re-Takaful, as well as identifying key challenges, opportunities and concerns of the industry as a whole.
Takaful operators believe that consumers would typically base their decision on the value proposition of an individual Takaful product rather than strictly Shariah issues. Retirement plans were seen as the top growth area for future Family Takaful offerings, due to current limited product availability. The report adds that the provisions of pensions and investment-linked products to the already credible Takaful field will allow it to garner an even greater share of the market.
With the unfolding potential of Family Takaful becoming an ever greater facet of the industry, it is still investment-linked products that dominate the Takaful product space globally, whereas pure protection remains uncommon in many emerging markets such as the Middle East. Pure protection is still seen as the lowest area for future growth.
Key challenges remain
Investment-related issues abound due to the financial crisis having slowed down the pace of investment growth in the Takaful space. This is compounded by the lack of interest in savings products due to poor fund performance and a lack of growth in mortgage and real estate lending related products. However this trend is set to reverse as improved financials will increase fund performance.