|
GLOBAL: The global
Islamic insurance industry may be posting phenomenal double-digit growth
rates, with gross written contributions poised to hit the US$20 billion
threshold by 2017 (according to AM Best), but Middle Eastern players are
nonetheless taking a back seat in this growth story as Malaysia and Saudi
Arabia continue to dominate the sector. Saudi Arabia aside, Middle
Eastern Takaful operators are grappling with an oversaturated market
riddled with various challenges unique to Islamic insurers, cutting into
both profitability and growth.
According to AM Best, Takaful operators have underperformed their
conventional counterparts over the past four years (analysis based on 14
GCC Islamic insurers and 24 UAE conventional players), despite the
Takaful companies generating stronger claims ratio in most years. A
driving factor for this underperformance is the higher costs
(operational, compliance) incurred by Takaful players who not only lack
the economies of scale to compete with conventional operators, but are
also resorting to undercutting prices (well below their technical prices)
to capture business – significantly affecting profitability and
subsequently undermining one of Takaful’s major unique selling points to
customers: financial incentives during periods of good profitability.
The situation is further complicated by the Middle Eastern insurance
market being hugely underpenetrated particularly the life insurance
segment. AM Best in a special report released today attributed the lack
of growth in the life insurance business to customers failing to “see a
necessity for life insurance products due both to the general social
security schemes and limited awareness and knowledge of saving and
protection products”.
“An obvious opportunity for Takaful firms to strengthen their profiles
and improve the diversification of their earnings would be to expand
regionally into neighboring countries,” said the rating agency. However,
this is easier said than done as Islamic insurers face a major obstacle
of uncompromising regulatory environments, which dampens the desire for
regional expansion as a lack of uniformity in Takaful accounting
practices and regulation pushes compliance costs up.
And while standard-setting bodies such as AAOIFI and IFSB continue to
strive to harmonize the regional regulatory environment through
international standards, AM Best purports that further impetus is
required from local regulators to truly enable effective regional
expansion of Islamic insurers.
Suggesting that Takaful companies adopt high-growth strategies rather than
focusing on driving prices down, AM Best said operators should look to
enhancing their distribution channels beyond brokers and distribution
agents, to include bancaTakaful arrangements. Companies may also
seriously consider the proposition of strategic consolidation with other
players to achieve greater scale and cost synergies. Another strategy
would be to compete on service levels and claims management rather than
price, and the ethical underpinnings of Takaful.
|
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.