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Saturday, 18 April 2009

Takaful sector booms as customers switch

LONDON/DUBAI (Reuters) - Growth in the emerging global Islamic insurance industry, or takaful, is waning slightly due to the economic slowdown, but remains strong as more people switch from conventional insurance.

The global market is seen growing as much as 30 to 40 percent annually in the next three to five years and could reach as much as $11 billion by 2015, Ahmed al-Janahi, managing director of Noor Takaful, told the Reuters Islamic Banking and Finance Summit, held around the world this week.

Industry players agree the takaful market is in a better position to weather the global economic downturn than the conventional market, given their asset-based investment strategies.

"We have seen the likes of AIG and others burning so many people, so even in the West, people are looking at takaful on ethical and not just religious grounds," said Sheikh Abdul-Aziz bin Naif al-Orayer, chairman of Bahrain-headquartered Islamic insurer t'azur.

Under Islamic insurance, members contribute to a pool of funds which is used to indemnify participants who suffer a loss. Profits made from investing the funds are distributed among members.

Abdul Rahman Tolefat, chief executive of Bahrain-based Allianz Takaful, said these profits give takaful an advantage over conventional insurance.

"There's more transparency, you know whether you join a surplus or a deficit fund," he said, adding the majority of the firm's customers are non-Muslims.

SLOW START IN EUROPE

While takaful is growing rapidly in the Gulf Arab region, Indonesia and Malaysia, the market is virtually non-existent in Europe and this could be an interesting area for expansion.

The UK has one stand-alone pure sharia insurer, Salaam Halal, which is marketing its products to Britain's Muslim community. HSBC Amanah is also present with a home insurance product.

France, home to around 5 million Muslims, is also changing its legal system to allow Islamic financial institutions, which are expected to include takaful companies.

The first movers could get a huge advantage, according to Mohammed Khan, director for takaful business at PricewaterhouseCoopers.

"Some of the bigger players in Europe definitely have plans to offer takaful products. The question is when's the right time to launch them," Khan said.

Insurers from other countries will wait and see how Salaam's business develops before dipping their toes in the industry, he added.

Large insurers, although potentially better positioned than niche players in terms of capacity, will not necessarily be able to make a move into the market after chalking up losses on their investments. Those with capital remain cautious.

"We're in a period where the deployment of capital is important. It's not that easy to raise capital," Khan said.

But the emergence of specialists like Salaam could increase pressure on big insurers to offer Islamic products.

There may be room for both large and niche players in the takaful market, in the UK at least, said Humayon Dar, CEO of the Islamic consultancy division of BMB group.

"Takaful is a better growth area for Islamic finance compared with retail or investment banking," Dar said.

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