Global Takaful sector continues growth story – but not without struggle 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.”
Posted on: Thu, 11 Sep 2014 06:20:54 +0000
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