Malaysia's takaful industry has been promoting values-based intermediation to spur innovation and support the development of takaful. While the takaful market in Malaysia has experienced growth in the past year, operators face several challenges to innovate and scale their business.
“The size of the takaful industry has expanded nearly three times from where it was a decade ago. The growth is propelled by the growing public awareness of takaful products and a supportive Islamic finance ecosystem.
“It is also facing critical challenges in attaining expertise to scale and find the right business model. These challenges have become roadblocks for the industry to be on a better footing to resolve the social protection landscape and facilitate an orderly transition to a green economy,” said Bank Negara Malaysia assistant governor Suhaimi Ali speaking at the Takaful Rendezvous.
He said there are more than 330 takaful operators in 47 countries worldwide. Global takaful assets are estimated to be worth $73bn, almost double compared to 2015.
“Attaining greater market maturity is still a long journey as the current takaful share is a modest 1% relative to the global insurance market,” he said.
He said takaful operators should introduce values-based products to meet the socio-economic needs of the country.
“An important outcome that we hope to see is greater availability and accessibility of takaful products that serve protection needs of the society,” he said.
He said takaful operators should make use of digital technology and the environment provided through the regulatory sandbox. Through such initiatives, the regulator is keen to facilitate innovative business models by new entrants as well as incumbents.
“More countries are working on the necessary regulations to enable the capital offerings and growing contribution of the sector,” he said. Takaful players in Malaysia need expertise and capabilities that provide the capacity to support the growth and expansion of the takaful industry in other markets.
Mr. Ali also spoke about how takaful operators should remember the importance of abiding by the objectives of shariah.
“The integration of shariah principles and values-based intermediation in managing takaful funds is not only expected but crucial for the industry advancements,” he said.
However, requirements imposed by the regulator can be challenging for takaful operators to follow.
“Following Islamic financial principles is easy but it has been regulated in such a way that it has become very descriptive. As a result, there's an added cost to takaful companies because they must have a separate line of governance on Islamic finance principles,” said industry consultant and former Munich Re CEO Mohamed Rafick Khan speaking at Takaful Rendezvous.
He said takaful companies must be allowed to use different models and not be restricted to a wakalah model.
“We need to find a structure that supports the companies’ products operationally and is efficient from a tax and capital perspective … Many are struggling because of technical and structural issues to achieve a cost-efficient operation. The regulator (faces challenges) in finding a way forward to unwind past insurance processes,” he said.
The Takaful Rendezvous 2023 runs from 26 to 27 September in Kuala Lumpur, Malaysia, organized by Asia Insurance Review.
Source: asiainsurancereview.com