E&Y: Takaful Market to Grow Significantly

Takaful insurance is growing 35% faster than conventional insurance worldwide, and is poised to become an $11 billion market by 2015. This information comes from Ahmed Al Janahi, managing director of Noor Takaful, at the 4th Annual World Takaful Conference, which opened in Dubai yesterday.

Many of the statistics mentioned come from Ernst & Young’s World Takaful Report 2009, which was unveiled at the conference. The report notes that global Takaful contributions have risen to $3.4 billion in 2007, as compared to $2.5 billion in 2006. Saudi Arabia, with contributions totaling $1.7 billion in 2007, and Malaysia, with $797 million, are the top two Takaful markets worldwide.

Compared to the reported losses of almost $350 billion of conventional insurers and government supported enterprises in the Americas, Europe and Asia, the Takaful market has largely shown resilience in the current economic downturn.

However, the last quarter of 2008 has seen a decline in the returns-on-equity of major Takaful operators. As a consequence, Takaful operators are increasingly concerned with the strategic, operational, compliance and financial risks they face today.

“The global downturn has affected everyone and Takaful is not immune,” says Omar Bitar, managing partner, Advisory Services, Ernst & Young Middle East. “Takaful operators now need to better manage their costs in a more challenging market as the risk landscape has changed substantially. Investment portfolios, human resource expertise and competition will be their most pressing business risks over the coming 12 months. Operators will also need to reassess their core business, move away from a reliance on high-risk investment returns and focus on achieving underwriting profit.”

Favorable demographics, increased income earnings, the propensity to consume and changing social attitudes toward insurance are the fundamental long-term demand drivers of Takaful, according to Ernst & Young. A young population in core Takaful markets will need more coverage as government subsidies decrease and more families require private coverage. Regulatory support and framework, insurance legislation and compulsory coverage will facilitate its growth in the medium term.

“Takaful markets now span much of the globe but there still exists a large, expanding and untapped Muslim population on almost every continent,” says Sameer Abdi, head of Ernst & Young’s Islamic Financial Services Group. “We estimate that the global Takaful market could be as high as $7.7 billion by the end of 2012.”