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GLOBAL: The Takaful
industry continued its phenomenal double-digit growth story in 2013 and
is expected to sustain momentum for the next three years, according to
EY’s recently-launched Global Takaful Insights 2014: Market Updates. With
a projected growth rate of 14% for 2014, the global Islamic insurance
sector is estimated to exceed US$20 billion by 2017 from US$12.3 billion
in 2013. Yet this optimistic market forecast and performance is not
without its challenges.
“Performance varies significantly across markets and operators. In
striving for scale and profitability, operators are looking at structural
transformation around risk, pricing and cost efficiencies,” explained
Rauf Rashid, EY’s country managing director for Malaysia. “Significant
regulatory divergence across markets also continues to somewhat adversely
impact the industry growth and profitability around the world.”
GCC
Differing performance is perhaps best illustrated in the case of the GCC,
which registered 12% growth (excluding Saudi Arabia which recorded 11.7%
growth) and is projected to garner gross contributions of approximately
US$8.9 billion this year, from US$7.9 billion last year. Saudi Arabia
continues to be a core market for the sector in the GCC as well as
globally, commanding nearly half (48%) of gross Takaful contributions
worldwide; while other GCC markets (Bahrain, Kuwait, Qatar and the UAE)
account for 15%. In the context of the GCC, Saudi Arabia holds a majority
77% market share, while the UAE trails behind at 15%, followed by the
rest of the Gulf countries at 8% of gross Takaful contributions.
“Profitability of Takaful operators in other GCC countries continues to
be undermined by intense competition,” noted the report. As a result,
several operators are looking at alternative customer segments and even
exploring merger options. Lack of regulatory uniformity in allowing GCC
Takaful companies in operating across different Islamic insurance models
is also viewed by industry players as a growth impediment.
Saudi operators have also been faced with performance challenges as a
result of regulatory changes for higher reserve ratios and the adoption
of actuarial pricing, which affected unfavorably the financial results of
motor and health Takaful segments. However, this may be compensated, in
the medium-term at least, by the mandatory requirement for insurance for
government vehicles as well as compulsory third-party liability insurance
for high-risk public premises.
ASEAN
Driven by strong economic dynamics and a young demographic, the ASEAN
region continues to thrive with a cumulative annual growth rate of 22%,
placing a firm grip on a third of global gross Takaful contribution.
Malaysia and Indonesia continue to dominate the ASEAN Takaful market with
the former accounting for nearly three quarters (71%) of total gross
contributions within ASEAN while Indonesia took home 23%, leaving the
remaining 6% to their other ASEAN peers.
Motivated by Malaysia and Indonesia’s relatively strong 2014 GDP growth,
which stands at approximately 5%, and significant regulatory reforms for
the industry, the ASEAN Takaful growth story is likely to continue to
flourish this year to reach around US$4.2 billion from an estimated
US$3.5 billion in 2013.
Industry hope
Despite the inherent challenges of the Takaful sector due to its youth
and immaturity, the goal of a sustainable Takaful ecosystem could still
be possible given the strong underlying market opportunities and
competitive climate, supported by ongoing regulatory reforms - and more
significantly, the solid growth of the larger Islamic banking sector.
However, in order to achieve this goal it remains imperative for the
“industry to get in order”, as aptly noted by Rauf, who also urged that:
“Creating regional Takaful champions would provide the much-needed growth
impetus and would perhaps be the next step in this exciting market space.
Having a regional champion, be it in the GCC or ASEAN, is really our hope
for the industry.”
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