In spite of a reduction in the pace of expansion in the global Islamic insurance market in previous years, SUSAN DINGWALL and MARTIN SCHNEIDER opine that growth remains significant, and a number of recent strategic developments should provide strong foundations for further growth in the market.
Review of 2016
During 2016, we saw a number of general themes emerge as follows:
- A focus on greater cooperation between markets. For example, the London market has reached out to markets in the Gulf region and Malaysia. The Islamic Insurance Association of London has visited Bahrain and Dubai to increase collaboration in promoting the development of Islamic insurance solutions. It has also been involved in discussions between the City of London and Malaysian regulators to help support Malaysian investment and growth.
- A continued push by London to establish itself as an important hub for Islamic finance and insurance. Lloyd’s of London has recently announced it has provided in-principle approval for Cobalt Underwriting to establish a Shariah compliant syndicate at Lloyd’s. Coupled with the establishment of Lloyd’s platform in Dubai, this development potentially offers significantly increased re-Takaful capacity for commercial risks.
- Enhanced regulation has been introduced in a number of markets which will, in the long term, lead to better capitalized and more stable Islamic insurance providers. It is also likely to encourage better technical underwriting and more realistic pricing and may result in merger activity as smaller Islamic insurers require stronger capitalization to continue to operate in a more stringent regulated environment.
- The establishment of learning programs to educate market participants on Islamic insurance. One of the recurring criticisms is that intermediaries do not offer their clients Islamic insurance products as they do not fully understand them. This deficiency will hopefully soon be a thing of the past in the London market as the Chartered Insurance Institute has developed a course which will enable both underwriters and brokers to obtain a solid understanding of the principles of Islamic insurance.
- A drive to create standardized Islamic insurance policy wordings. There have been a number of calls by market commentators for harmonized global regulation of Islamic insurance products and for a standard operating model to be used. It is unlikely that either of these demands can or will be met in the near or medium term but focus can be brought to bear on standardizing Islamic insurance policy wordings so that they are on an equal footing with their conventional counterparts. The advantages of standardizing policy wordings will be that policyholders will have greater confidence in the product being offered and they will be better able to make an informed choice. Standardized wordings also provide certainty – certainty in their interpretation and market understanding. Intermediaries will be able to approach policyholders with a product which is every bit as good as its conventional counterpart.
Preview of 2017
We anticipate that 2017 will bring the following:
- Further re-Takaful capacity from the Lloyd’s market as the Lloyd’s Dubai platform matures and Lloyd’s is successful in securing an onshore reinsurance licence in Malaysia. We can expect Lloyd’s to continue its strategy of accessing the world’s fastest-growing economies and developing its brand, for example, in Africa where there is a real demand for Islamic insurance solutions.
- Greater consolidation in Middle Eastern markets leading to fewer Islamic insurers with stronger balance sheets and a more substantial market presence.
- A continued emphasis on strengthening regulations and their enforcement. This is likely to lead to a focus for Islamic insurers on better risk management and internal controls, which will in turn be good for the market as stronger Islamic insurers emerge.
- More potential for growth in the life and health sector in the Middle East where a number of governments are introducing mandatory health insurance programs for employees.
- More opportunities for the Islamic insurance sector in the Middle East if low oil prices become the new normal. Governments may have to accelerate the diversification of their economies and Islamic insurance can play a major part in what is likely to be the start of a long-term shift away from a dependence on oil exports.
- Greater use of Islamic insurance in transactions financed Islamically and a drive by governments on their own projects to require Islamic insurance solutions.
Conclusion
It is easy to forget that the Islamic insurance industry is less than 40 years old, such has been its rapid growth and development during that period. There are real opportunities to take a quantum leap forward, particularly in developing Islamic insurance solutions for commercial risks, and in offering products which are every bit as good as their conventional counterparts. Islamic insurance should not be seen as a niche product but one which is very much in the mainstream.
Susan Dingwall is a partner and Martin Schneider is an associate at Norton Rose Fulbright. They can be contacted at [email protected] and [email protected] respectively.