Dubai: The global Islamic insurance (takaful) industry has strong growth prospects across relatively new markets in Africa and south-east Asia, with significant Muslim populations, as well as core markets such as the GCC, Malaysia and Turkey, according to analysts.
In light of the industry’s strong growth prospects, the World Takaful Conference (WTC) starting Monday will discuss the impact of technology disruption in the industry to form adaptable digital strategies for insurance operators.
Key panels at WTC 2018 will focus on the issues of embracing digitisation to increase insurance penetration and drive business growth, the legal and regulatory challenges associated with InsurTech and game-changing technologies that are revolutionising the takaful industry.
In terms of global market share, the GCC region dominates the global takaful industry, representing 77.2 per cent of the world’s takaful gross written premiums (GWP) in 2015, according to a recent report by Aplen Capital.
At an estimated $11.5 billion (Dh42.23 billion), the region’s takaful market has grown at a compounded annual growth rate of 18 per cent from 2012, and accounts for nearly 44 per cent of the GCC insurance sector. Preference towards Sharia-compliant financial solutions and an expanding non-life market are the factors aiding growth.
In Africa, the takaful market is relatively nascent and its prospects are buoyed by the introduction and expansion of compulsory insurance covers such as motor and medical insurance, spurring regulators in the region to introduce takaful specific guidelines, including in Egypt, Kenya and, soon, in Morocco.
In south-east Asia, takaful providers are introducing more innovative products and distribution channels spurred by increasing public awareness and facilitated by the development of robust regulations.
“Regulatory changes in some of the GCC countries, which represent around 77 per cent of premiums of the global takaful market, have pushed up insurance prices, particularly for motor and medical cover,” said Mohammad Ali Londe, an analyst at Moody’s.
“This has improved the underwriting profitability of takaful insurers. The GCC takaful sector’s improved underwriting performance will help it halt capital erosion and attract fresh investor interest.”
The takaful sector continues to benefit globally from strong growth, having achieved gross premium contributions of $14.9 billion in 2015, and an estimated $20 billion in 2017.
“We expect this growth momentum to continue in 2018 and over the medium term, spurred by strong growth prospects in south-east Asia and North Africa,” said Londe.
GCC takaful insurers’ improved profitability reflects an increase in prices triggered by regulatory changes such as the introduction of actuarial reserving in Saudi Arabia and the UAE.
In Saudi Arabia, where the entire market is Sharia compliant, actuarial reserving and pricing contributed to a decline in the overall loss ratio from 80 per cent in 2015 to 78 per cent in 2016, with a further reduction to 77 per cent over the first three quarters of 2017.
The improvement in profitability is expected to attract fresh interest in the GCC takaful sector from both existing shareholders and new investors.
This would allow takaful operators to replenish their capital, as well as improve their financial flexibility, equipping them if necessary to participate in market consolidation.
Merger and acquisition activity had previously been on hold because of the weak underwriting performance of some players in the sector.
Analysts say that there are too many insurance companies in the GCC, and that many of these players lack the scale to operate successfully in overcrowded and highly competitive markets. While there have been only a small number of merger announcements by takaful players in the GCC over the past year or so, analysts do not expect to see any transformative mergers in the near term.