The overarching principle of Takaful is to provide a Shariah compliant safety net for the general population whilst at the same time continuing to provide for the Islamic muamalat in what is an increasingly challenging environment. For more than two decades the Malaysian Takaful industry has seen tremendous growth, strong performance and resilience. For example, between 2005 and 2010 it saw a CAGR of 27% in terms of net contributions.
Family Takaful does however continue to dominate; representing 25% of these total contributions in what is predominantly a domestic-driven enterprise. This success is intrinsically linked to the growing affluence of the Malaysian populace and strong economic fundamentals of the country at large. This growth potential remains as ‘low lying fruit’ and easy pickings with only 54% of the population having life insurance.
As the industry grows, infrastructure and sustainability will be key going forward. Malaysia has done a remarkable job in terms of supporting and nurturing the Takaful industry, and this is shown by its willingness to showcase its achievements to other nations. Nowhere is this more apparent than through the awareness of the need to enhance corporate governance and export this model overseas.
Corporate governance is seen as a strategic necessity for maintaining the efficiencies and the stability of the sector and for protecting the rights of policyholders and external shareholders. Corporate governance is also essential in its validation of Takaful models; the relationship between the policyholder and shareholder funds; and ultimately the inherent ethical values postulated by the principles exuded from Takaful. It is also essential for identifying risk opportunities within the sector as this will enhance the quality and credibility of the sector, allowing greater loyalty and commitment from participants.
It must be however noted that the Takaful market continues to present some interesting features and distinct challenges compared to the conventional market offerings in that it must be able to match the service quality of the conventional industry and at the same time it has to convince the uninsured segment of the market of its Shariah compliant facilities.
The fact that this industry is quite new requires Takaful operators to adapt existing mechanisms and laws to create their own corporate governance framework and to avoid any conflict of interest which may arise in their decision-making processes. In short, it continues to remains difficult for the Takaful industry to be placed on a level playing field with the conventional industry and it is to be hoped that through constant discussion and evolution the Takaful industry will take comfort in the knowledge that the journey is not in vain for the market players.
The industry will continue to be engaged in developing new products and guidelines. It will only be through its deliberation and eventual achievement of new laws and regulations that effective solutions will be brought out to address these challenges.
The overall initiatives to consolidate Malaysia’s position as an Islamic financial center under the MIFC as it seeks to enhance the international dimension of Malaysia’s Islamic financial industry offer a compelling prospect for the Takaful industry.
According to Syed Moheeb Kamarulzaman, the chairman of the Malaysian Takaful Association and the president and CEO of Takaful Ikhlas, Malaysia is already at the forefront of the development of Takaful, particularly Family Takaful. However it needs to continue to build on these strengths and achievements, seizing the opportunity to export this experience to the estimated 1.5 billion Muslims around the world who are underserved by the conventional insurance industry. “This is a window of opportunity for Malaysian Takaful operators to accelerate their global orientation and move up the global value chain,” comments Kamarulzaman, adding that Malaysian Takaful players are not yet seen as serving the global market. “We need to go back to the drawing board and address the critical success factors that will allow Malaysia to move forward as an international Islamic financial center. We have done so much, but we have seen little result globally.” – SW