Takaful Opportunities and Challenges

Takaful Islamic Insurance  Takaful Opportunities and Challenges

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There are several challenges facing takaful insurance, for example, one of the biggest obstacles for takaful providers is the limited amount of Shariah compliant reinsurance capacity. In this case takaful providers have to deal with conventional reinsurance companies untilre takaful [4] companies become available. takaful insurers need also to improve and develop their technical skills to meet an increasing demand for more complex insurance products (e.g. catastrophic risks) and investment portfolios. They also need to enhance their quality of coverage with reasonable prices to be able to compete with other conventional insurance companies (Kwon, 2007). On the other hand, there are still many opportunities for developing takaful products, increasing its covering not only among Muslims but among non-Muslims as well, to create potential demand for its products and to highlight its important principles.

Takaful Islamic Insurance

The main unique selling point of takaful is its Shariah compliment mutuality. takaful operators need to enhance this unique selling point; otherwise they will start losing their Muslim customers. takaful operators also need to seek support from Islamic banks and other Islamic finance institutions for funding in the case of deficits in the claims rather than looking for funding via Qard Hasanloans (Asaria, 2009).

In addition to the general and family insurance products that takaful can offer as alternatives to conventional insurance, takaful can offer more to the society as well. For example, T’azur, a takaful firm in Bahrain, has launched what it claims to be the world’s first Shariah compliant charitable insurance product, called the “Sadaqah” plan (T’azur, 2010). This plan suggests that the participants donate regular contributions which will be invested by the takaful operator over a number of years in Shariah compliant investments, and then later this sum will be passed on to a charity that has been chosen by the participant. If at any time the participant is unable to make this payment due to illness or other unforeseen events, the takaful provider will continue to make the payment on behalf of the participant. This type of plan is synchronized with the main aim of takaful , namely mutual help for the common good. Its benefit beyond the individual participant is benefit to the community as a whole (Anon, 2009).

Takaful Islamic Insurance

Despite the fact that recently a lot of research has been done on takaful insurance, see for example Abdul Rahim (2009, 2010), more research is needed to develop this important area of Islamic finance. For example, a recent study by Kaderet al.(2010) won a top prize in 2009 from the Geneva Association and the International Insurance Society, Inc. This study examines the cost efficiency of (non-life) takaful insurance firms operating in ten Islamic countries. They examined whether the cost efficiency of takaful insurance companies will be positively affected by three main factors; the proportion of non-executive directors on the board, a separation of the CEO and Chairman positions and the size of the board of directors. They found that neither non-executive directors nor the separation of the CEO and Chairman positions positively affect the cost efficiency, however, the board size and firm size have been found to have positive effects on the cost efficiency of takaful insurers. Finally, the study showed that there is no statistical evidence that regulatory environment has effect on cost efficiency



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To cite this document:
Tahani Coolen-Maturi, (2013) "Islamic insurance (takaful): demand and supply in the UK", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 6 Issue: 2, pp.87-104, doi: 10.1108/17538391311329806.