Takaful Primer 2009 by The International Takaful Summit

MESSAGE FROM THE CHAIRM A N

Message from the Chairman — International Takaful Summit 2009

HIS PRIMER is published as part of the Third International Takaful Summit held in London. Afkar Consulting Limited and their events organiser partner, Middle East Business Forum, pioneered the Summit in 2007. The Third International Takaful Summit builds on the two successful events held in November 2007 and July 2008. In addition to the Takaful Awards, the Third Summit is also fortunate to have a dinner hosted by Lord Sheikh at the House of Lords. Lord Sheikh, an insurance professional himself, has taken a keen interest in the development of the takaful industry in the UK and has supported the event to facilitate its development in the UK and Europe. The City of London has prided itself in being the premier Islamic finance hub in Europe. The City is host to a vast range of expertise which can deliver Islamic finance structures and instruments to meet its customers’ requirements. To build upon this expertise and retain London’s premier status the UK government has been committed to creating a level playing field for Islamic finance in the country. This effort, which was pioneered by the Late Lord Edward George, has now borne fruit and there is a proactive facilitation in this direction. There is now one full Islamic Bank, four Islamic Investment Banks and one Islamic Insurance (takaful) company licensed to operate in the UK by the FSA. Some groups are exploring the possibility of passporting their products to other EU jurisdictions and take advantage of the 15-20 million resident Muslim population in Europe. Others are looking at building on the ethical features of Islamic Finance and Insurance and appealing to the growing ethical and SRI market. The International Takaful Summit is designed to enable market participants from all over the world to capture the potential for Islamic Finance and Insurance in the UK and Europe. At every Summit, we strive to offer the best platforms and opportunities for our participants to make the most of the occasion. We welcome you to the Third International Takaful Summit and hope that you will become one of our many regular supporters. M Iqbal Asaria Chairman of the International Takaful Summit

The International Takaful Summit is organised by

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

[ 1 ]

ֵ 丐

A Spirit of Trust Since 1879

The Spirit of Trust Tokio Marine Group is committed to the development of Takaful and offers wide range of takaful products and retakaful capacity in a number of countries around the world. With its commitment to Corporate Social Responsibility, it constantly strives to deliver the best to its customers, fully aligned with local values and beliefs. Tokio Marine Nichido is Japan’s oldest and largest non-life insurance company, an undisputed industry leader in commercial and personal underwriting and writes most classes of business in takaful and conventional insurance.

Tokio Marine Group Tokio Marine Middle East is the Takaful Centre of Excellence of the Group based in Dubai International Financial Centre, P. O. Box 506616, Dubai, United Arab Emirates. For more information contact info@tm-mena.com, Tel: +971 4 425 5678, Fax: +971 4 425 5600, www.tmmena.com Group websites: www.tokiomarine.eu and www.tokiomarinehd.com/en

[ 2 ]

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

WHITHER TAKAFUL PENETRATION LE V E L S

Whither Takaful Penetration Levels?

AJMAL BHATTY hen looking at the size of the takaful industry, we invariably compare it to the size of the global insurance industry and find it is miniscule in comparison. Global takaful premiums of US$5.08 billion in 2006 compare with US$3.7 trillion in the global insurance industry. But such comparisons are meaningless. They do not compare like for like. Muslims constitute around 25% of the World population. Should US$3.7 trillion be scaled down by 75% before we compare that with US$5 billion? Or should we see what US$5 billion constitutes as a share of the markets in which it is being written alongside conventional insurance? The takaful industry may be small, but it is fast growing and driven by its universal appeal of fairness and good ethics for all. So the question is: “Will takaful penetration meet conventional insurance”? This is best answered with a YES and a NO. YES, for several reasons. Takaful is growing. It has been the fastest growing form of insurance for many years and there are still so many new markets around the world where it is poised to enter. We see so many investors, banks and institutions committed to the industry with their dollars; we see good demand for takaful for its ethical and fair proposition; and we find the investing of takaful funds is in complete harmony with anything we want to do for the good of society. The answer is also NO, but for only one reason. This one reason, however, has so many implications that if we are not careful, it can overshadow all other reasons on the yes-side. And this reason is the mind set of the stakeholders in the takaful industry that is still driven by a way of thinking hinged on conventional insurance. Take a common scenario: a successful insurance executive is recruited to manage a takaful company, and this is quite common as shareholders want capable people with a proven track record to look after their investments and future dividends. When this executive joins the company, he brings the benefit of years of relationships built in the industry, which should be all very well if this was to also bring Shariah credibility. Instead, Shariah compliance to the extent of doing the minimum is mostly what is achieved in maintaining these relationships. Shariah credibility by the way is more than Shariah compliance and we achieve this when we to-

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

[ 3 ]

gether build a mind set to take care of the spirit and not just the letter of Shariah principles. The industry may be Shariah compliant but not necessarily Shariah credible, at least not yet. We, as practitioners of takaful, need to work on this issue, referring to both Muslim and non-Muslim practitioners alike. A takaful practitioner must follow the stipulated rules and processes in a manner that makes his actions very much Shariah compliant. There are several examples where a Muslim country does not even support Islamic finance and takaful whereas others like the UK are much more proactive in understanding and accommodating the underlying issues of Islamic finance and takaful. To illustrate the point about mind sets, here are two examples drawn from real life experiences. The first example is about the principle of necessity. As the evolution of takaful goes, it started and grew rapidly in general takaful more than family takaful. But whatever the case, it started from zero in the early 1980s. The available capital then was not enough for direct writing companies to have enough capacity to write different types of risks on competitive terms. The only available recourse was conventional reinsurance capacity. The Shariah scholars very rightly allowed takaful companies under the principles of necessity or Zharurah, to reinsure on a conventional basis. That helped the industry to move forward. A confrontation in the market with the customers developed with fierce debates at times as to how the takaful industry could call this insurance “Islamic” when large chunks of claims paid came from conventional reinsurance….. the very reason why customers did not want to purchase conventional insurance in the first place? The principle of necessity was always very handy to explain the industry’s stance, hiding behind the fact that the respected Shariah scholars allow it. Some years later in the late-1990s, a few investors with foresight put their money together to set up retakaful companies on the basis that the industry had moved on and there was enough business generated by takaful companies that could be pooled on a retakaful basis. The flow into these pools was painfully slow. As there was no rated retakaful capacity, takaful players continued with reinsurance capacity. By this time family takaful business started to make a difference. The poor customer in the market, however, still had the same ar-

W H I TH E R TAKAFUL PENETRATION LEVELS

gument mixed now with frustration as he listened to the explanation of the principle of necessity. Some takaful companies channeled their business to these early retakaful companies and pools. Some more years later as we come to the present time, we now find quite a few rated retakaful players. These retakaful companies are finding some business but there is a lot more that should flow into these companies. The principle of necessity does not hold anymore, a point that should be emphasised by every Shariah scholar advising takaful companies. The poor customer is wondering why he or she should go to a takaful company any more when this company is reinsuring on a conventional basis. Guess which product the customer will prefer out of two equally competitive takaful products on the market, one fully reinsured on a conventional basis and the other on a retakaful basis? Both companies are Shariah compliant, but only one of them is Shariah credible. The company reinsuring on a conventional basis is doing so only because there is a history of relationships between its management and conventional reinsurers and sadly that takes precedence over the trust that the customer places in the management of that company in offering its customers Shariah compliant products. The second example is about how we in the takaful business see ourselves as a small niche within the larger universe of the conventional insurance market. Looking back at early articles of some 25 years ago written by conventional insurance industry commentators, Islamic insurance is described as a niche appealing to small segments of the market. The word niche is still associated with takaful 25 years later. This is hardly surprising when you find senior people within some takaful companies who think that only family takaful works better on a co-operative basis, who feel takaful is not so well suited to insuring the larger commercial lines. Sadly, this perspective is of insurance executives within the very markets where Islamic banking is flourishing, where the market has preference for Shariah compliant products, such as the GCC (Saudi Arabia, Kuwait, UAE, Bahrain, Qatar with the exception of Oman). But the facts speak for themselves. Islamic banking has been growing at 15% per annum. By 2007, there were over 300 Islamic Banks in 75 countries with assets of US$750 billion. This may rise to US$1 trillion by 2010, according to a recent report from Mckinsey. Takaful companies were allowed to be set up in these markets to give them a fair chance to conduct themselves in a Shariah credible manner and also to prove that this was a perfect response to the demand for takaful. This has been demonstrated very well. The world in-

surance market has been growing between 2% and 2.5% per annum over the last few years. Takaful has been growing at 20% per annum globally and at 25% per annum in the GCC. Takaful premiums for some Middle East countries (The GCC, Jordan, Pakistan and Iran) in 2006 was estimated at around US$2.9 billion, out of total insurance premiums of US$9.6 billion, approximately 30%. These are estimates based on the author’s understanding of these markets. For example, life insurance premium per capita for Saudi Arabia is generally quoted as $0.8 from published data. One research study (Business Monitor International) suggests that it is much higher at $10 per capita. With this kind of demand for takaful, with this type of growth and with so many takaful companies in these markets chasing a finite number of clients (for commercial lines at least), is it perhaps time for conventional insurance companies to convert into takaful? The conventional players have been there for years, being served by international brokers and reinsurers for years, and the conventional conveyor belt goes on and on, built on financial structures so blatantly alien to the value system of its customers. But there are conventional companies offering takaful products. Is it the appeal of takaful to the consumer that drives them to offer takaful? Or is the reason one of a defensive move to protect their market share? Do they have a dilemma of reduced surplus if they convert into takaful and lose market share if they don’t? The insurance industry in many markets, especially in the Middle East, should benefit from rationalisation. It is conventional insurance that should, in fact, be the niche in these markets providing insurance cover for risks that may be uninsurable under takaful (for example, the hotel and catering industry having prohibited activities under Shariah or larger oil and energy risks that require mega capacity and international placements). With reference to takaful being a “niche”, let’s see how small this “niche” is? The takaful industry has currently invested in excess of US$3.5 billion of shareholder capital and this is increasing, as the rate at which new takaful and retakaful companies are being formed including windows would be equivalent to around one a month. Consider the growth of takaful, 20% to 25% per annum compared to 2.5% per annum growth in world insurance premiums. On a global scale takaful premiums may be miniscule: US$5 billion against US$3.7 trillion. But if we look at only the markets where takaful is written then the size

[ 4 ]

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

WHITHER TAKAFUL PENETRATION LE V E L S

of the niche is around 30% in the greater Middle East and 20% in countries where takaful is operational globally. Can we call this a niche? Although Takaful took off in Malaysia and showed impressive build up in the early phase, it is the Middle East that is witnessing tremendous growth in takaful. The Middle East accounts for more than 80% of the global takaful market.

Human Development Index. The Human Development Index is a measure of life expectancy, literacy, education, standard of living, and GDP per capita. It is a standard means of measuring well-being, especially child welfare. It is used to determine and indicate whether a country is a developed, developing or is underdeveloped. It is also used to measure the impact of economic policies on quality of life. As the diagram below illustrates, many of the countries with takaful potential are in the Medium and High categories of Human Development with some countries moving places from Medium to High and others getting closer to the High level. In terms of insurance premium as a percentage of GDP, the story is again quite different if we look at the improvement over the same period, see diagram. What is on the left for some countries in the upper graph, is on the right side in the lower graph showing higher growth. Look [on the following page] at life insurance penetration to assess the potential.

The Middle East shows the highest growth at 25%. The growth in Asia after 2005 should be higher, as major players were established in 2006 and 2007, especially in Malaysia. There are probably now 150 takaful companies worldwide in some 26 countries. International players are now very much part of the takaful industry. Going forward, the potential is that of bringing takaful to a bankable Muslim population around the world. If this is say 30%, it is equivalent to at least 500 million customers out of a population of 1.6 billion. This is not including the fact that takaful should appeal to many more on grounds of its ethical and fair proposition that is good for society, community and our environment at large as funds are ethically channeled into environmentally friendly businesses and commercial activities. Many of the countries that have takaful potential are showing good improvement in the United Nations

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

[ 5 ]

Countries with low life insurance penetration and high GDP per capita offer most potential in generating new takaful premiums. These are in the top graph. But countries with high life insurance penetration and high GDP per capita also hold promising potential for takaful as there is greater awareness for insurance within the fis-

W H I TH E R TAKAFUL PENETRATION LEVELS

cal and regulatory environment in these countries. So, what is the outlook? There have been various figures circulating in the industry, lowest being US$7.4 billion by 2015. The highest is US$14.5 billion.

The argument at the beginning of this paper was put forward with a YES and a NO to the question of whether takaful penetration will meet conventional insurance. In the same manner, both estimates of the potential size of the takaful industry have equal chance to be right depending on the degree to which the takaful industry

proves to be Shariah credible. Whether or not we change our mind sets about retakaful, about working hard to make ourselves as the mainstream and not a niche, and the degree to which we are committed to change the perceptions of our conventional counterparts and how actively we lobby with the regulators about fiscal and insurance legislation, that should not impede the growth of Islamic finance and takaful. We need good standards of corporate governance and responsible boards to ensure that this takes place. We need staff within takaful companies and regulatory bodies who are knowledgeable about Shariah and insurance and can act as Shariah experts within agreed Shariah compliance rules and standards acceptable within wider geographical regions and if we are lucky more globally. We need local associations of takaful and retakaful operators in addition to the one and only international body we have right now. In these associations, local issues and problems should be debated and resolved quickly. All this is essential to be Shariah credible. That will keep the trust of the consumer. The rest is all about operational management based on our technical strengths in products, systems, distribution, the need for Banctakaful, the need for having long term products including pensions, the need for micro-takaful serving the poorer segments of society etc. Do that, and we can be sure that we will meet the penetration levels of conventional insurance in these markets over the coming few years. â&#x20AC;&#x201D; Ajmal Bhatty is CEO of Takaful, Tokio Marine Middle East

[ 6 ]

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

TAKAFUL AND MUTUA L I TY

Takaful and Mutuality â&#x20AC;&#x201D; A Meeting of Minds or a Parting of Ways?

M IQBAL ASARIA ccording to the 2009 Ernst and Young World Takaful Report , gross takaful contributions have grown from US$ 1.4 billion in 2004 to over US$ 3.4 billion in 2007. According to the report there are now 179 takaful operators out of which 143 are full takaful operations. Based on its research and interviews the report estimates that the likely size of the global takaful market could be as high as US$ 8 billion by the end of 2012. 1

Clearly, this is a major growth market offering opportunities to a diverse range of participants. This is an opportune moment to look at the evolving models of takaful in the various jurisdictions and take a reality check with the spirit of takaful. This will allow us to look at this growing industry and detect any emerging tensions in keeping the takaful movement true to its underlying rationale. The underlying principles and rationale of takaful share a lot of features with co-operative mutual insurance models. Essentially, members come together to enable risk sharing for particular events by contributing to a common pool. This pool is managed by or on behalf of the members. There are usually no shareholders involved. The operator is remunerated for the services provided and any underwriting surplus accrues to the members. This is either reserved for future claims or re-distributed to the members. Many co-operatives or mutuals also have ethical investment policies for the deployment of the contribution pool. Thus, in the best cases, investment returns will also be ethically derived. These commonalities have led many commentators to liken takaful to mutual or co-operative insurance. However, many of the mutuals and co-operatives have grown organically over long periods of time and so have overcome issues of adequate reserves to meet adverse claims experiences and the like. Even so, over the last three decades, with the frantic activity in financial markets, many have succumbed to the lure of shareholder driven models and de-mutualised. The present credit

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

[ 7 ]

crunch has seen a revival in interest in pure mutuals, but it is too early to say if this change in sentiment will result in any concrete move back towards co-operative models. Takaful companies, starting over the last four decades, were faced with a dilemma. Waiting for organic growth could take a long time. There was an expectation that the Islamic Development Bank in conjunction with national central banks could come up with some modalities to provide cushion in the early years and facilitate the development of takaful mutuals. This expectation was not met in a sufficiently timely manner. Thus some way needed to be found to create viable companies in a short space of time without waiting for communities to

organically develop the equivalent of mutuals. As a result over the last 30 years takaful companies have evolved into hybrids, incorporating many features of mutuality, but also providing for shareholders involvement in a variety of ways. In practice this has resulted in a number of models being developed. Initially, in Malaysia the Mudarabah model was favoured and pioneered by Bank Islam via its Shayrikat Takaful Malaysia subsidiary. The Malaysians used what is now termed a modified Mudarabah model. The pure Mudarabah model, allowing for sharing of only the investment return was found to be commercially too challenging for nascent operations.

TA KA F U L AND MUTUALITY

The modified Mudarabah model allowed the operator to share in the investment return on the contribution pool and also in any underwriting surplus. Over the years this has also been found to be challenging and most operators are moving towards the Wakala or a modified Wakala model. Variants of the Wakala model, pioneered in the GCC countries, have become the most popular operating mode for Takaful operators.

In both the Mudarabah and Wakala models and its variants, member’s contributions are treated as Tabarru or gifts to the claims pool. This, it is argued, absolves the possibility of Gharar and Maysir (uncertainty of outcome and gambling). Most of the Shariah scholars have accepted this formulation although there is an element of implied conditionality in the Tabarru. Some scholars, especially in Pakistan, have argued that this can be mitigated by devising an as yet third model based on the institution of Waqf (perpetual trust). This well established mechanism in Islamic jurisprudence, allows for settlors and contributors to the members pool and also for defined beneficiaries from the pool. Since, defined beneficiaries for specified outcomes are explicitly allowed, this avoids the idea of compromising the “gift” attributes of Tabarru perceived in other models. Apart from this feature, the operational modalities are quite similar to those found in Mudarabah and Wakala models. It can be seen that all the prevailing models are essentially hybrids between mutu-

In the Wakala model, the operator acts as an agent for the members. The operator, in return for an agency fee, manages the members claim fund. In the pure Wakala model the operator has no further claim on the investment return or the underwriting surplus. In practice, the operator has one further obligation. This is to indemnify the members fund in the event of a deficit in the contribution pool. This is to be done via a Qard al Hasana (virtuous) loan to be recouped from future contributions and reserves. This obligation and the need for incentivising the operator to perform optimally, has led to two modifications of the pure Wakala model. In some cases the operator is engaged to manage the contribution pool on a Mudarabah basis and allowed a performance incentive on the investment return. In many other cases, in addition to sharing of the investment return on a Mudarabah basis, operators have also been successful in persuading Shariah scholars to allow them to share in the underlying surplus.

ality and shareholder driven insurance companies. This hybrid nature of takaful operations can lead to a significant number of potential conflicts of interest between shareholders and members. These could prove to be minefields in setting pricing policy, establishing adequate level of reserves in the contributions pool and definition and sharing of the underwriting surplus. At a minimum level this demands a high degree of transparency and institutional involvement of members’ representatives in decision making for the whole opera-

[ 8 ]

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

[ 9 ]

TAKAFUL AND MUTUA L I TY

tion. Presently, transparency levels leave much to be desired and members’ interests are assumed to be guarded by the Shariah scholars.

tuality aspects of their operations to make significant further headway. This may mean a renewed ask from the Islamic Development Bank and other Islamic financial institutions to pioneer ways of funding periodic deficits in the claims funds without relying on the operator to fund these via Qard al Hasana loans. With the development and maturity of the Islamic finance market this should be possible. Innovative ways can be found to provide enabling environments for takaful operations to start and grow without undue reliance on shareholders. Such a development, in turn, can allow members to moderate the demands of the operators and their shareholders. In time, this can allow mature takaful operations to move progressively towards mutuality and the spirit of takaful.

Experienced commentators on takaful operations, consulting actuaries, rating agencies and academics have started to raise these issues in a number of fora. They all point to the fact that these issues are not satisfactorily addressed and urge takaful operators to recognise these explicitly and deal with them. In particular, there is a growing call for involvement of members in decisions on surplus distribution and other management issues to be formally institutionalised. 2

As takaful providers and take up increases, users of these products will want to see the specific benefits of this kind of insurance provision vis-à-vis other alternatives. As discussed, the unique selling point (USP) of takaful is its Shariah compliant mutuality. To achieve greater penetration takaful operators will need to find creative ways to enhance this USP. If on the other hand, these underlying issues emanating from the hybrid nature of dominant takaful models are not satisfactorily addressed, the whole takaful movement could be compromised and would loose its appeal for Muslim customers. Present penetration rates, even in Malaysia with the longest experience of takaful operations, are low and need to be boosted up. Many observers feel that takaful operators will need to find ways of enhancing the mu-

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

[ 11 ]

References: 1. Opportunities in Adversity – The World Takaful Report 2009, Ernst & Young April 2009. 2. Rating Perspective: Takaful Still Facing Challenges, Carlos Wong-Fupuy, AM Best In Redmoney — Islamic Finance News January 2009 A shorter version of this article appears by the same author in The New Horizon magazine published by the Institute of Islamic Banking and Insurance, London

M. Iqbal Asaria is a consultant with Afkar Consulting specialising in Islamic Finance. He is also Chairman of the International Takaful Summit.

for the automotive repair industry

Motordata Research Consortium (MRC Malaysia) in partnership with The Motor Insurance Repair Research Centre (THATCHAM, UK), is an industry initiative serving the Malaysian Motor Insurance and Takaful industry in reducing subjectivity in motor claims estimation and containing cost of claims.

[ 12 ]

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

TAKAFUL MARKET OPPORTUNITIES IN EU ROP E

Opportunities for the Takaful Market in European Countries Susan Dingwall and Ffion Flockhart

t is evident that the growth of the Islamic finance sector in recent years has encouraged the corresponding development and growth of the takaful market, with the Middle East and Asia in particular seeing a significant increase in demand for Shariah compliant insurance products. In line with this trend, market commentators expect the interest in takaful to translate into the European market. Ernst & Young’s World Takaful Report 2009 notes that global takaful contributions had risen to US$3.4 billion in 2007, compared with US$2.5 billion in 2006. Whilst predictions range on the estimated future rate of growth of the market, research from Moody’s rating agency indicates that global takaful premiums are likely to reach a total of over US$7 billion by 2015. With over 15 million Muslims in Europe as well as a ready non-Muslim audience for ethical insurance products, the European share of that market has the potential to be a substantial contributor to such projected growth.

Why might Europe be fruitful ground for takaful? There are a number of reasons why Europe is well placed to develop a strong takaful sector. The key contributory factors are deemed to be the maturity of the various European markets, the demography and strong regulation. Firstly, the European insurance markets are very mature relative to the Middle East, where there has traditionally been a fairly low penetration of insurance products. There is also a strong consumer understanding of the benefits of insurance cover in Europe which means that, in addition to the large Muslim populations in countries such as France and Germany who may wish to obtain Shariah compliant insurance products, non-Muslims may also be receptive to the unique selling points of takaful. For example, the potential distribution of surplus amongst participants at the end of each policy period and the ethical investment policy are likely to be attractive to non-Muslims.

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

[ 13 ]

Indeed, there is already an increasing demand in European countries for ethical insurance and takaful products which are combined with “green” solutions (for example, a motor policy where part of the donation goes towards carbon off-setting) may well be very successful. In addition, whilst other jurisdictions have struggled to recruit experienced staff, Europe has a wealth of knowledge and experience of the insurance industry which will be essential for the development, marketing and selling of takaful products. As regards demography, Europe has a population of 15 to 20 million Muslims which is ever increasing due to high birth rates and a growing number of conversions to the faith. Takaful is likely to be an attractive option for many of these Muslims and the figures support the view that the European share of the takaful market has the potential to be a key contributor to the global growth of the industry. The increasing interest in Islamic finance amongst European countries is also an important factor for the success of takaful. Furthermore, the European market is strongly regulated which is arguably a significant factor in assisting the growth of the takaful market. For example, strong regulation is vital to maintaining consumer confidence, particularly in the current economic climate. In addition, rating agencies view strong regulation as key in determining the rating of an insurance company or takaful operator and, in turn, a strong rating is an essential component for attracting investment and aiding growth on an international level.

The European regulatory environment Takaful operators in Europe will need to operate in accordance with the principles and within the parameters of Shariah law as well as being subject to the EU regulatory regime for insurers. Since the EU regulatory regime does not differentiate between conventional insurance and takaful, takaful operators wishing to do business in Europe will find their rights enshrined in the

[ 14 ]

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

TAKAFUL MARKET OPPORTUNITIES IN EU ROP E

EC Treaty; formerly known as the Treaty of Rome. it will, within one month, issue a consent notice to the The EC Treaty creates a common market in both goods Host State regulator, confirming that the Home State and services. Article 43 of the Treaty sets out the “freehas given its consent for the establishment of the dom of establishment”, which is the freedom of busibranch in the designated jurisdiction. nesses based in one Member State to form a permanent establishment or branch However, if doubts exist in relation to, in another Member State and Article for example, the adequacy of the 49 sets out the “freedom of servtakaful operator’s resources, its adices”, which allows one Member ministrative structure or the reputaThe Insurance State to provide services into another tion, qualifications or experience of Directives enable Member State without the establishits managers, the Home State regument of a branch. The framework of lator has discretion to refuse to proa takaful operator the EC Treaty is implemented vide its consent to allow the which has been authrough various Directives and the establishment of the branch. If a regulatory regime for insurers is conconsent notice is issued, the Host thorised in one tained in the “Insurance Directives” State regulator must, within two Member State (the which provide a single set of rules months of its receipt, notify the governing the authorisation and pruHome State regulator of any of the “Home State”) to dential supervision of insurance Host State's rules which will apply to carry on its business companies and takaful operators by the branch business (known as the the Member State in which they are “applicable provisions”). If no applianywhere in the EEA authorised. cable provisions are notified after two (the “Host State”), months, the takaful operator may establish its branch, subject to the relwithout the need for “Passporting” evant laws of the Host State. The Insurance Directives enable a takaful operator which has been authorised in one Member State (the “Home State”) to carry on its business anywhere in the EEA (the “Host State”), without the need for further authorisation. This process is commonly known as “passporting”. However, the “passporting” process differs depending on whether the takaful operator seeks to establish a branch in the Host State or merely wishes to provide cross-border services.

Establishing a branch in the Host State

further authorisation. This process is commonly known as “passporting”. However, the “passporting” process differs depending on whether the takaful operator seeks to establish a branch in the Host State or merely wishes to provide crossborder services.

A number of establishment conditions must be satisfied by a takaful operator seeking to establish a branch in a Host State. Firstly, the takaful operator must give the Home State regulator notice of its intention to establish a branch in another EEA state. Essentially, this notice will identify the activities the takaful operator wishes to carry out through its branch. Once the Home State regulator has considered the notice of intention and is satisfied with its contents,

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

[ 15 ]

Providing cross-border services in the Host State In the event that a takaful operator wishes to provide cross-border services, it must satisfy a number of service conditions. Firstly, the takaful operator must give the Home State regulator notice of its intention to provide cross-border services, which identifies the activities which the takaful operator wishes to carry out. In the UK, within a month of receiving the takaful operator’s full notice of intention, the FSA must either: • give notice to the Host State regulator of its consent and inform the takaful operator that it has done so; or

• provide the takaful operator with written notice of its refusal to grant consent, giving reasons for such refusal. Once the Home State has provided its consent, the takaful operator may provide cross-border services in the Host State. Although the Host State should not require

TA KA F U L MARKET OPPORTUNITIES IN EUROPE

the takaful operator to comply with local laws and regulation, it is advisable from a risk management perspective for the takaful operator to seek its own advice from local counsel in the relevant jurisdiction as to whether any applicable local rules apply.

Further requirements of the Host State Although the regulation of insurance in Europe is harmonised by the Insurance Directives, a takaful operator must still comply with the Host State’s conduct of business and marketing rules. These rules may vary between EEA states, since each state can implement its own rules based on the concept of the “general good”. In principle, this allows a Host State to apply its normal consumer protection rules. However, the rules will only apply if they do not affect the creation of a common market by restricting the activities of incoming takaful operators. For a measure to be justified as being for the general good it must: • be non-discriminatory • be justified by imperative requirements in the general interest • be objectively necessary • be proportionate to the objective pursued • not have been harmonised at Community level • not duplicate the rules of the home Member State

adequacy and solvency requirements. The Home State regulator will then liaise with the Host State regulator on the takaful operator’s behalf, certifying that the required standard has been met. Given this key role, a takaful operator wishing to take advantage of its “passporting” rights within the EEA will need to consider carefully which EU regulator would be the preferred Home State regulator. The takaful operator should take into account a number of factors, such as the applicable regulatory hurdles, the costs of authorisation, the administrative burden in seeking auThere are clearly signifithorisation, the ongoing management cant opportunities to and supervision obligations as well as the knowledge and general attitude of develop takaful in the the regulator to takaful and Islamic fiEuropean markets. nance in general.

The ability to “passport” from one Member State to another pursuant to the Insurance Directives is a key factor in unlocking this potential. Although there may be some regulatory hurdles for a takaful operator to overcome in both its Home State and applicable Host state, these hurdles should be minimal given that the aim of the EC Treaty is to create a common market for goods and services.

This requirement that any additional rules imposed by a Host State must satisfy the “general good” seeks to ensure that the passporting rights of insurance companies and takaful operators alike are not unduly hampered by over-regulation.

Choosing a home Whether the takaful operator is seeking to establish a branch or provide cross-border services, the key regulator will be the Home State regulator. The Home State regulator will be responsible for ensuring that the takaful operator complies with the various prudential requirements such as the calculation of reserves, capital

Conclusion

There are clearly significant opportunities to develop takaful in the European markets. The ability to “passport” from one Member State to another pursuant to the Insurance Directives is a key factor in unlocking this potential. Although there may be some regulatory hurdles for a takaful operator to overcome in both its Home State and applicable Host State, these hurdles should be minimal given that the aim of the EC Treaty is to create a common market for goods and services. The UK, France and Germany are currently perceived to be the main markets for takaful in Europe and the FSA in the UK is leading the way having authorised its first takaful operator, Principle Insurance Company Limited which is trading as Salaam Halal Insurance. The UK government is keen to expand this market by reinforcing London as a global gateway for Islamic finance. On a wider basis, the maturity of the insurance markets in Europe arguably provides a strong platform for the growth and development of takaful. Expectations for the future are high and if Turkey becomes a member of the EU in due course, there is likely to be an even greater prospect of growth as Turkey is regarded by many as the bridge between the Europe and the wider Muslim world. —Susan Dingwall as a Partner and Ffion Flockhart is an Associate at the International law firm Norton Rose LLP

[ 16 ]

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

! " # $ % ! & ! ' $ ( & ) * + " * $ , - $ , . . /0 & - )

1 + )

2 /0 31 2// & 4 2 /0 31 2//

2 ( / 2 & 4 2 ( / 0

5 $ 5 5 5 " ! - 1 6 & ( 07 ' 6 ) 6 " $ - $ - 6 %. %8 $ 5 % 5 7 % 5 " - (/ 6 ! 1 " 6 6 9 ! 6 ! ! : $ ) ! ; - ) 8 < * - ! . 7 6 - " . $ $ < 6 -) $ 8 .- <6-) ' % $ ) ' % $ + ) ; ; %;< . - < 6 - - $ ;<< < 6 -7 ; - !!

- 6 - 6 %. %8 ) % 5 - - ! - 6 % ! . $ 2 6 ! ( ) - !6 - =% $ 5 >7 - ) 6 4 - - 6 : 33 ! $ - $ ! ) - ! ! ? - 6 " -7

$ %

@ $

% $ . % < 6 % $ ; ; < % $ < 6 ? $ < 6 @ $ $ < 6 @.< % 6 $ < 6 ! %% $ < 6 8 < $ < 6 ' - <.8 $ < 6 $ ;$6 .- <6. $ $ < 6 !6 $

% $ $ C " ) < $ % 9 D

; ; %;< .- <6 $ ;<< < 6 $ ;*<< < 6 -

! " ' % ' $ . 6 ' ; ; - ' 8 ; - ' % $ + ' % $

% % ! $ ; !

' $:+ " $ $ ' $ -

% & 9 $ ; ! +7.7 7

% . $ ; ! 5 $ ; ! +7.7 7

+ " ! A

B ; ! ; ! B $

* +

$ $ ' -

& % $ -

" .6 $ ; ! E ! ; ! ; !

< . A

" )

( )

* $

% *6 8 $ % @ $ 6 ? $ ; ! .% % % ; ! % ; ! '. $ $ -- -

' " """7 $ 7! ! ! # $ 7! 7 7

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

[ 17 ]

[ 18 ]

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

DELIVERING THE DIFFERE N C E

Delivering The Difference: The Cooperative Experience SABBIR PATEL

he International Cooperative Alliance, the apex body of the world cooperative movement defines a cooperative as: “an autonomous association of persons united voluntarily to meet their common needs and aspirations through a jointlyowned and democratically controlled enterprise.” The underlying values of a cooperative and mutual scheme are self-help, equality, solidarity, openness and social responsibility. Some of the key principles of a cooperative include open membership, democratic member control and concern for the community. The basic principles and structure of a cooperative and mutual are very similar and will be referred to as one. There are many different cooperative structures in place around the world all focused on giving necessary services to groups of individuals from similar backgrounds. They include agricultural cooperatives, credit unions, housing and healthcare schemes as well as professional and retail based organisations serving almost 900 million individuals. The similarity between these different cooperatives is that they have been established to address a need. In essence the reason for their existence is to serve their members. What makes them different to investor-owned organisations is that they are owned and governed by their customers and all activities are centered around their customers. But is it enough just to say we are different? The wave of demutualisation in the 1990s was a wake up call for the cooperative movement worldwide. Members lack of understanding and lack of affinity to the organisation they are purported to be owners of meant that they were easily swayed to vote for demutualisation in return for a financial reward. It was ironic that most policyholders only realised that they were owners when they were offered a cheque payment. They were in effect being asked to sell something they did not know they had and its value to them was therefore zero. Cooperatives for many years had taken their

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

[ 19 ]

existence for granted and not responded to a changing consumer profile by ensuring their values and principles were constantly felt by their members. The cooperative insurers that were able to stand strong were those that demonstrated their difference through their operations, particularly in the following areas: Corporate Social Responsibility: Taking a socially responsible approach to business is at the forefront of many ICMIF members’ strategic objectives. Coop Seguros of the Dominican Republic has introduced a life policy including cover for HIV/AIDS for members with policies for loans, savings, collective life and funeral plans. As well as providing insurance Coop Seguros is now in the fifth year of its project to promote the prevention of HIV/AIDS in partnership with 35 member cooperatives. This education effort has now reached almost 300,000 individuals predominantly focusing on school cooperatives and young savers’ groups. Other examples include Folksam in Sweden who in response to a growing pension crisis developed a pension fund which had the lowest administration charge in the market, the government then pushed other fund providers to follow Folksam’s lead. MACIF in France have trained its staff to use sign languages and developed a website to cater for the particular needs of those that are deaf and hard of hearing.

Community Work: Royal Liver in the UK are active in transforming run down playgrounds and runs The Royal Liver Poetry of Place competition which sees schoolchildren write poems about their favourite Liverpool places. With 8,000 entries the competition plays a major part in the education of Liverpool’s 11 to 14-yearolds, with English teachers working it into their summer lessons. The Co-operators of Canada has launched “Vol-

Overview With almost US$1 billion in assets under management, CIMB-Principal Islamic Asset Management is a partnership between Principal Global Investors and CIMB Group Sdn Bhd. The company is an offshoot of CIMB-Principal Asset Management Berhad (CIMB-Principal), which was founded in 1995 and has a reputable heritage of managing Islamic institutional mandates since 2000. CIMB-Principal Islamic’s objective is to provide a full spectrum of Islamic investment solutions, optimally customised to meet global investors’ needs and objectives. The firm manages sub-advised collective investment trust funds and aspires to be the most valued global Islamic asset management house managing institutional mandates. Headquartered in Kuala Lumpur, Malaysia, CIMB-Principal Islamic is strategically located in the world’s first country with a complete Islamic financial system operating in parallel to the conventional banking system. This allows the firm to leverage on Malaysia’s comprehensive Islamic financial infrastructure and its adopted global regulatory, legal and Shariah best practices. CIMB-Principal Islamic strives for superior performance based on a disciplined investment process that adheres strictly and transparently to Shariah investment principles. This is achieved via: x

Internationally renowned Shariah investment advisory: The panel comprises Islamic finance scholars from diverse backgrounds. The Shariah investment committee is strongly supported by experienced and capable Shariah secretariat and professionals with deep Islamic capital markets experience.

Disciplined investment process: The Company is closely aligned to Principal Global Investors’ investment philosophy, and benefits from CIMB-Principal’s established capability as a credible manager of Sukuk and Shariah-compliant equity portfolios in the Asia Pacific ex-Japan region.

Shariah-compliant portfolio structuring expertise: The Company is able to holistically advise and structure mandates to meet global investors’ objectives, with insight and knowledge gleaned from longestablished relationships managing Takaful (Islamic insurance), Shariah-compliant unit trust funds and pension assets.

Islamic capital markets experience: The Company also leverages on CIMB Islamic’s award-winning franchise and excellent international track record in Islamic capital markets. Recognised globally by renowned international publications, CIMB Islamic’s recent accolades include 2008 Best Sukuk House (Euromoney Islamic Finance Awards), 2008 Best Islamic Finance Bank (Global Finance), 2008 Best Islamic Bank in Asia (Euromoney Islamic Finance Awards), and 2008 Best Islamic Fund House (Asia Asset Management).

Investment Attributes Competent Shariah-based Finance Professionals Islamic Capital Markets Experience

Disciplined Investment Process Broad Insights on Clients’ Needs

Contact For further information, please contact: Dr. Zeid Ayer Chief Investment Officer Phone: +603 2084 2092 E-Mail: zeid.ayer@cimb.com CIMB-Principal Islamic Asset Management Sdn Bhd (217841-M)

(formerly known as SBB Asset Management Sdn Bhd)

Level 5 Menara Milenium 8 Jalan Damanlela Bukit Damansara 50490 Kuala Lumpur Malaysia Telephone (603) 2084 2000 Facsimile (603) 2084 2004 www.cimb-principal.com.my

[ 20 ]

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

DELIVERING THE DIFFERE N C E

unteers In Action” which is a group of passionate staff who meet regularly to help meet their communities’ needs from soup kitchens to fire departments, helpful neighbours, dedicated drivers and even removing snow from the roadside. Environment: In 2005 The Co-operative Insurance Society head office in Manchester (the CIS Tower) became Europe’s largest vertical solar project, with all three sides of its 25 stories clad in energy-generating solar panels. The Solar Tower provides enough electricity to power 1,000 PCs for a year. In 2006 The Co operative Insurance became the UK’s first insurer to launch an Eco-Motor Insurance policy, offering customer discounts on “greener” cars and the opportunity to offset the environmental impact of their driving. Corporate Governance: Engage Mutual in the UK has an on-line customer panel which amongst other things tests new products and provides feedback on customer service. They are sponsors of the Rugby Super League, as well as the rugby league trophy being on display there is a prize draw for the final to encourage members to attend the AGM. The Cooperators has established a number of Community Advisory Panels (CAPs) across Canada where they interact with community members, and listen to advice and recommendations on product and service, as well as on any matters relating to their community involvement. Each CAP is comprised of 10-14 knowledgeable community members from various sectors such as: healthcare, education, business, environmental, co-operatives, youth, and seniors. Surplus Sharing: The surplus from operations belongs to members. This can be used to increase reserves, reduce premiums, increase coverage and products, provide bonus payments or simply redistribute to the membership. This is decided by the board of directors who are elected by the members. Recently, NFU Mutual in the UK announced a bonus to its loyal customers for the tenth year running. In 2009 this was up to 10% of general insurance premiums for renewal customers and amounted to a total of £85 million. 93% of customers renew their policies every year. Loss Prevention: Tajy in Paraguay have developed a number of hard hitting advertisements to encourage road safety in the country. It is also working directly with its cooperative members to develop a change in attitude towards driving and its possible consequences on peoples lives.

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

[ 21 ]

Ethical Investing and Lobbying: The Asset Management department at the Cooperative in the UK considers companies demonstrating effective management of environmental and social impacts and sound governance to be best placed for growth in current market conditions. The Good Companies Guide, launched with the Observer on Sunday based on research by the Responsible Shareholding Unit at the Cooperative ranks the UK top 350 companies according to a range of responsible investment criteria. Socially responsible business practice is becoming an increasingly influential factor on company bottom line performance. Since the launch of its ethical policy in 1992 the Co-operative Bank has turned away over £1 billion of loans to businesses that conflicted with its customers’ ethical concerns. The Co-operative Insurance seeks to influence good governance of its investees, in 2007 it voted in opposition to management on 1,053 resolutions, including against the acceptance of Reports and accounts in 52 instances. Cooperating With Others: There are many examples of cooperatives working with each other and building partnerships for the greater good. The latest example being in France where three ICMIF members have decided to join forces by forming a common mutual structure, The three insurers, which generate a combined turnover of US$12.15 billion in 2007, are seeking productivity gains and economies of scale, notably by pooling their reinsurance purchasing, and to develop their life, savings and health business. Social and Financial Inclusion: Historically, cooperative and mutual insurers were created to provide access to insurance protection to underserved populations. ICMIF members in developing countries excel in collecting small premiums from large numbers of people, making insurance protection both accessible and affordable to the low and middle income population. There are 60 members of ICMIF who are involved in providing insurance to over ten million low-income individuals.

D E L I V E RI NG THE DIFFERENCE

What can be gained? So what would be the benefits of being a so called “responsible insurer”? Following the steps demonstrated above creates a self-challenging culture within the organisation, management are continuously asking how better can we serve our members? How can we address some of their pressing concerns outside of insurance? How can we represent their needs? By incorporating policyholder values in strategic decision making you build an affinity with them, by ensuring they are involved in product development you are matching their needs and by working hard to improve the livelihoods of their communities you are building trust. The company’s brand is enhanced, the reputation as a responsible insurer bears benefit with potential policyholders, regulators and media. It attracts a new generation of employees who are seeking to work for a value-based company, matching employees objectives with corporate objectives are critical to high motivation and loyalty of staff. Employees become proud of working for your organisation. Being different also gives you a competitive edge, your transparency and ethical considerations gives you credibility in the market place, your close proximity to the end user means more needs responsive products and services and you are seen as an innovator in the industry.

What are the costs? As they say there is no gain without some pain, there is the opportunity costs of time and resources which could be used in other operational areas. To be a real “responsible” insurer requires a massive investment and not something that can be done half-heartedly. It requires a long-term strategic vision which will affect short-term profitability. It needs the buy-in of all stakeholders and it has to be part of the DNA of the company and its staff. Once the organisation has put itself forward as a responsible insurer it has be totally transparent in its own operations. Competitors and media will be quick to highlight flaws that contradict with the values you are pushing forward. Policyholder involvement could also be seen as policyholder interference especially if they do not have a true understanding of how an insurance business is run. Effective policyholder

interaction is hard to achieve especially as the organisation grows in size. Not all policyholders can be satisfied but by ensuring regular communication and dialogue a happy compromise can be reached.

Successful coops There are of course examples of failures in the cooperative movement and as mentioned many have also fallen away to demutualisation. But those that have continued to invest in their ethical values and built a strong partnership with their customers have flourished. Folksam in Sweden was founded in 1908 as a response to the lack of insurance solutions for ordinary people with an average income. Today the premium income of Folksam Group is over US$3 billion handling more than 18 million insurance contracts. Folksam currently insures every second family home in Sweden, every second person in Sweden and every fifth car in Sweden. The Cooperators of Canada was established in 1945 when a group of Saskatchewan wheat farmers decided to pool their collective resources to start an insurance co-operative. Currently the company has over four thousand employees and US$7 billion in assets. With its origins starting in 1844 in Rochdale The Co-operative Group in the UK has grown into a unique family of businesses. In 2007 it had an annual turnover of £9.4 billion, with 87,000 employees serving around 10 million customers a week.

The cooperative offering In essence the cooperative offering is about taking a holistic needs driven approach to insurance which is incorporated throughout the activities and staff of the organisation. As customers are the ultimate owners it is their concerns and priorities that have to be addressed first and foremost, happy customers mean loyal customers.

Taking Takaful to the next level? So what is the relevance for the takaful sector? At the 4th International convention on Takaful and Retakaful

[ 22 ]

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

DELIVERING THE DIFFERE N C E

(ICTR) a recent survey by MARA University of Technology in Malaysia was presented showing that acceptance level of takafuls in Malaysia were moderate, with only 57% being convinced that takaful products are Shariah compliant. While awareness of takaful was high at 88% only 58% were aware of any takaful company. The low penetration of takaful in Malaysia of 8% was mostly due to poor information dissemination, ineffective campaigns and limited access to information. At the same conference Ms Koid Swee Lian, Director of Consumer and Market Conduct Development at Bank Negara pointed to the need for takaful to be promoted and marketed as an ethical product.

The other areas are not as set in stone and it is up to the individual takaful operator how much time and resources it commits to these, we can look at some examples from the industry: Environment: The project “Green Life 360” was started by Amana Takaful and Interact District 3220 in 2007 to support reforestation and educating the public of the importance in preserving the environment. The project covered recycling plastic materials, to cleaning up a polluted coastline in Colombo, arming the civilians through a reforestation campaign in Galle and a “workshop for a greener tomorrow”.

Here is a list of possible areas takafuls could be more socially responsible organisations: • • • • • •

Surplus sharing Ethical investing Environment Community involvement Financial inclusion Governance

Surplus Sharing is written into the contract of takaful, the fund belongs to the policyholders and the shareholders are the operators for a fee which could be a profit share, management charge or both. At the moment, in theory, surplus distribution ranges from around 10% to 100% depending on the takaful model, the question is actually how much is given back to policyholders. Do they feel owners? and more importantly do they see themselves as having a stake in the success of the takaful fund? It is true that many takaful operators, with some exceptions, are not able to provide physical returns to policyholders as they are still in the development stage of their business cycle, but efforts can be made in marketing and branding to give the sense of ownership to the policyholder as well as increasing transparency on takaful models. As operators begin to grow more financially stable surplus distribution can be a means to reinforcing the difference of takaful against conventional operators. Ethical Investing is again implicit in takaful, all investments made by takaful operators have to be Shariah compliant. The criteria for halal investments is very clear, but as well as Shariah compliancy takaful may consider taking a more proactive approach in its role as shareholder in companies, again as assets grow of takaful operators this is another potential opportunity to state their different approach.

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

[ 23 ]

Community Involvement: In September 2008 Etiqa Takaful provided 27 poor families with new and improved homes in Malaysia through its Corporate Zakat Responsibility programme, since its inception in 2006 the programme has provided aid worth over US$500,000 through construction of buildings, providing home appliances and education material. Earlier this year Etiqa recently held a blood donation campaign at its head office in partnership with the University Malaya Medical Centre resulting in 200 Etiqa staff donating blood in support of the blood bank. In 2008 Amana teamed up with Rotary District 3220 and held camps in strategic locations to educate the citizens on voidable child blindness through “Vision Camp 2008”. The three month mission saw over 1,100 children having their vision checked and visual aids provided. The team also held camps within the Galle and Kalutara districts, where the team educated the public on the impact of avoidable child blindness and the simple ways of detection and correction. In September 2008 Takaful Ikhlas provided food assistance to flood victims in Kedah in time for Eid-ul-Fitr celebrations and launched a programme called Jejak Fakir to identify needy individuals and families. They also provided new clothes for twenty orphans to share the joy of Ramadan and Eid Mubarak. Financial Inclusion: Providing access to affordable Takaful products have also been introduced by some players. Shiekan in cooperation with Sudan Central Bank re-

Expertise. E xpertisse. Just Ask Just Ask Our Clients. O ur C lients. Aon iiss tthe Aon he lleading ead i n g g global l oba l p provider rovider o off rrisk i sk m management anagement services, ser vices, insurance insurance and an n d rreinsurance e i ns u r an c e b brokerage, ro ke ra g ge , an and d human h u uman c capital ap ita l consulting. co ns u lt i n g . Through T h ro u g h our o ur 3 37,000 7,0 0 0 c colleagues olleagues w worldwide, or ldwide, w we e deliver d el ive r our ou r e expertise x pe r ti se locally l oca l ly tthrough h ro u g h more m o re tthan han 5 500 00 o offices f f i ces iin nm more o re tthan han 120 1 20 c countries. o u nt r i es . Aon Ao n is i s recognized re co g n i ze d for fo r delivering de el ive r ing distinctive distinctive c client l i e nt v value al ue via via iinnovative nnovative a and nd e effective ffective ssolutions. olutions. Visit V isit aon.com aon.com to to experience experience how how Aon Aon can c an d deliver eliver value value and and impact impact to your your bu usiness. business.

[ 24 ]

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

DELIVERING THE DIFFERE N C E

cently signed a Microtakaful operations document with several commercial banks in order to provide protection to small lenders and their families. Amana Takaful Insurance (ATL) has introduced a micro takaful policy named “Navodaya”, (dawn of a new era), catering to the low income groups in Sri Lanka. This product is targeted at factory blue collar workers; tea estates, labourers and other self employed workers and costs 1 Rupee per day.

the financial report and other company affairs are discussed. Policyholders need to be given a clear mandate and a sense of responsibility in the fund. Whilst many takaful operators may not find that feasible, avenues should be explored to create policyholder committees or advisory panels to increase interaction between operators of the fund and owners of the fund.

Conclusion

More recently Etiqa launched the “Skim Tabarru’ Koperasi”, a new group takaful protection scheme that caters specifically for all cooperative members. Under the new takaful scheme, cooperative members need only to pay between RM5.00 to RM25.00 per year to get a death benefit as high as RM19,000. This scheme is the only scheme for cooperative members that provides coverage up to 80 years of age.

In conclusion, we can say that in these new times finding trustworthy financial institutions is becoming an overriding concern for consumers. Being open, transparent and honest in its operations and having social concerns an integral part of its values and practices can restore consumer trust. The timing seems right for the responsible insurer to step forward and provide the security and comfort lacking in today’s market place.

On the final point of Corporate Governance, the takaful is in effect a hybrid of the mutual and stock structure, the management of the takaful fund is in the hands of the shareholders whilst ownership is with the policyholder. The IFSB in its exposure draft “Guiding Principles on Governance for Islamic Insurance (Takaful) Operations” highlights some issues:

Cooperatives have been doing it for decades but even they have been guilty of resting on their laurels and not fulfilling their responsibilities to members. The lessons in the past have shown us that any corporate social responsibility strategy has to be at the heart of the organisation’s strategic decision making and supported at all levels of management. A halfhearted or PR exercise in this area will eventually be found out and can be more detrimental to the company’s reputation.

1. There is no clear mechanism by which the takaful participants can control and influence, not to mention sanction, the behaviour of the takaful operator 2. Since takaful participants are not involved in the management of the takaful funds they cannot exercise any rights as owners of the funds 3. The lack of representation for the takaful participants and the inadequate information environment may give ample room for maximisation of value for the shareholders at the expense of takaful participants interests. To enable policyholders to feel like real owners of the fund and to be closer aligned to their needs, Takaful operators need to explore avenues for greater interaction and real involvement. In Sudan, policyholders are represented on the board and an annual meeting of policyholders is called where

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

[ 25 ]

Cooperatives have been ideally placed to take the mantle as responsible insurers as it is part of their DNA, takaful also has the same philosophy in its basic principles and can build on this to demonstrate their differences to their policyholders. Inherently it is easier for cooperatives, as their policyholders are their owners, whilst takafuls will need to educate and encourage their shareholders that not only philosophically and spiritually this strategy makes sense but also in the long term the business will succeed as a result. The question for takaful operators may be “as long as it is Shariah compliant is it enough?” Or should takafuls be striving to fulfil a higher level of Shariah compliancy? —Sabbir Patel is Senior Vide President at the International Co-Operative and Mutual Insurance Federation (ICMIF)

Principles of Takaful Developing knowledge and skills for the Takaful sector 4HE #)) AND THE "AHRAIN )NSTITUTE OF "ANKING AND &INANCE ")"& HAVE JOINTLY DEVELOPED A NEW COURSE ON 4AKAFUL FOR THE INDUSTRY Â³0RINCIPLES OF 4AKAFULÂ´ PROVIDES AN ESSENTIAL GROUNDING IN THE KEY ISSUES INVOLVED IN PROVIDING INSURANCE COMPLIANT WITH 3HARIAÂ´AH LAW )F YOU ARE A PRACTITIONER WORKING IN THE INDUSTRY OR ARE NEW TO 4AKAFUL THIS DISTANCE LEARNING COURSE WILL HELP YOU DEVELOP THE KNOWLEDGE TO OPERATE CONÂ½DENTLY IN THE MARKETPLACE

6ISIT WWW CII CO UK TAKAFUL FOR MORE INFORMATION 4HE #)) PROVIDES MARKET LED QUALIÂ½CATIONS AND STUDY PROGRAMMES WHICH SERVE ALL SECTORS OF THE INSURANCE INDUSTRY AND CATER FOR ALL LEVELS OF KNOWLEDGE AND EXPERIENCE 7ITH OVER MEMBERS IN MORE THAN COUNTRIES THE #)) IS THE WORLDÂ´S LARGEST PROFESSIONAL BODY DEDICATED TO THIS SECTOR 4HE 0RINCIPLES OF 4AKAFUL UNIT IS PART OF THE #))Â´S INSURANCE QUALIÂ½CATIONS FRAMEWORK AT !DVANCED $IPLOMA LEVEL

[ 26 ]

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

TAKAFUL IN TH E U K

Takaful in the UK — The Potential Role of Friendly Societies

JOHN GILBERT uch effort has gone into devising legal structures to deliver Shariah compliant mortgage and savings products for the UK market. However, for insurance, an ideal vehicle has existed for over 200 years and is waiting to take on a new lease of life to serve the growing Muslim community not only in the UK but throughout the European Union: the friendly society. In essence a friendly society is a mutual association which exists to provide benefits to its members. Friendly societies were first recognised under an Act of the British Parliament in 1793 but their origins have been traced back as far as mutual assistance groupings that existed in the Roman legions from North Africa, which raises the possibility that friendly societies may share a common origin with the concept of takaful. In their modern form, British friendly societies began to flourish in the industrial revolution, when there was a movement of population in the UK to the industrial towns and the social support systems that people had relied upon for centuries in their rural villages broke down. Many of the earliest societies were burial societies: members of the society contributed a small sum each week and the society guaranteed them a decent funeral on their death.

ety membership but friendly societies survived and evolved during the second half of the 20th century to serve two principal markets: a niche small savings market and a market for so-called “Holloway” products, which are unique to friendly societies and provide a form of income protection during sickness but also contain an investment element which pays a lump sum on retirement.

Societies were helped by tax advantages: small friendly society life assurance investment products are exempt from UK tax and all non-life activities carried on by societies established before In essence a friendly 1975 also are exempt from tax. society is a mutual Friendly societies were also boosted association which exists by a reform in legislation in 1992 which allowed them to incorporate to provide benefits to and to extend their powers. There its members. Friendly are now around 50 active UK societies were first friendly societies with some 5 million members and assets under recognised under an management of about £15bn

Act of the British Parliament in 1793 but their origins have been traced back as far as mutual assistance groupings that existed in the Roman legions from North Africa, which raises the possibility that friendly societies may share a common origin with the concept of takaful.

This evolved into a rudimentary form of life assurance, paying a lump sum or a widow’s or orphans’ pension to the families of deceased breadwinners, and into medical insurance. Indeed, before the advent of the Welfare State in the UK after the Second World War, friendly societies were the main channel through which medical and pension benefits were delivered to the general population. The welfare state resulted in a decline in friendly soci-

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

[ 27 ]

Although some so-called “registered” societies continue to exist under earlier legislation, most friendly societies have become incorporated bodies under the Friendly Societies Act 1992 which sets out the principal purpose of an incorporated friendly society as being to provide insurance and other benefits for its members, and people connected with its members, funded by voluntary contributions. Insurance benefits include most classes of life insurance and accident and sickness insurance but not other classes of general insurance, which friendly societies may provide through subsidiaries.

The “other” benefits include the power to make discretionary grants to members in distress or adversity and the power to engage in social and benevolent activities, which is defined to include charitable work, but also allows societies to run social clubs, housing schemes,

TA KA F U L IN THE UK

help lines and wider benefits for their members. Many societies originally catered for specific occupational groups, groups of people from a particular locality or for people with a common ethical or religious bond. Some still do this and tailor the benefits they provide to the particular group they serve. The only constraint on social and benevolent activities is that they must be provided on a non-commercial basis. From a legal point of view an incorporated friendly society is similar to a company formed under the Companies Acts but is not the same, and the Companies Acts do not apply to friendly societies; as well as differences between friendly societies and most companies in their ownership and capital structure, the separate legal framework for friendly societies also results in slightly different rules on the constitution of a friendly society, the manner in which directors operate and the reporting requirements. In the UK, friendly societies are a recognised legal vehicle for the provision of insurance under the Financial Services and Markets Act 2000. They are regulated by the Financial Services Authority (“FSA”).

Friendly societies share much of the ethos of takaful: they are firmly embedded in a culture of mutual assistance and exist for the benefit of their members; they have no shareholders and any surplus from their operations is shared among the members. They have a charitable ethos and are funded by voluntary contributions in a manner that has parallels to the concept of tabarru’.

Regulation by the FSA means that a friendly society based in the UK can operate throughout the European Union and the European Economic Area under the “single passport” with minimal formalities in the other countries in which it operates. Although the traditional market for friendly societies products has been within the UK, several societies have expanded their activities elsewhere in Europe. Friendly societies share much of the ethos of takaful: they are firmly embedded in a culture of mutual assistance and exist for the benefit of their members; they have no shareholders and any surplus from their operations is shared among the members. They have a charitable ethos and

are funded by voluntary contributions in a manner that has parallels to the concept of tabarru’. Furthermore a friendly society operating a takaful scheme for Muslim members could also offer additional support and services to its members and support Muslim charities. However, this does not mean that the traditional mudharabah, wakala or mixed models of takaful structures cannot be applied to a friendly society; they can and similar structures have been used to provide traditional insurance in the UK market through friendly society vehicles. This flexibility, friendly societies’ shared ethos with the principles of Islamic finance and the tax advantages of friendly societies make them an ideal vehicle for takaful not only in the UK, but throughout Europe. There are challenges: the FSA has recently indicated that it intends to interpret its rules on with-profits life assurance in a way that will threaten the long term viability of many friendly societies and other mutual life assurance vehicles. The friendly societies movement has been campaigning to prevent this move, which would also, no doubt unintentionally, limit the potential for the development of family takaful in the UK (in contrast with the FSA’s professed encouragement of Islamic finance products, most notably in its paper on Islamic Finance published in November 2007).

However, even if the FSA does persist with its interpretation of its rules, friendly societies will remain viable so long as they can continue to write new with-profits business. The Islamic market, both in the UK and elsewhere in Europe, may be the key to their continued survival and prosperity. —John Gilbert is a consultant for the internal law firm Lovells LLP

[ 28 ]

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

Ad Etiqa

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

[ 29 ]

Global Leader in Takaful Expertise “Best Takaful Product” 2008 World Takaful Summit “Best Takaful Operator” Islamic Business & Finance 2008 Why choose FWU Group for tailor-made “white label” Family Takaful Savings, Education & Retirement plans? Regular and lump sum contributions Open investment architecture Sophisticated web-based sales and policy administration system Structured Re-Takaful solution with a major global reinsurance company Bank distribution partners in the Middle East, Far East and the Emerging markets Offers local support through regional offices in Dubai and Kuala Lumpur FWU Group is a leader in international Bancatakaful, product innovation and quality customer service FWU Group is an Observer Member of the Islamic Financial Services Board (IFSB) www.fwugroup.com Dr. Manfred J. Dirrheimer, Chairman & CEO, FWU Group Boschetsrieder Straße 67 D-81379 Munich Tel: +49-(0)89-7485880 Fax: +49-(0)89-74858881 m.dirrheimer@fwugroup.com

Mr. Sohail Jaffer, Partner, FWU Group 4A Rue Albert Borschette L-1246 Luxembourg Tel. +352-26197 709 Fax. +352-26197 801 s.jaffer@fwugroup.com

[ 30 ]

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

PROMOTING TAKAFUL FOR A L L

Promoting Takaful for All â&#x20AC;&#x201C; Aiming for Global Service Standards ATSUHIKO AYABE

akaful, usually translated as Islamic Insurance was originally invented by, and developed for the convenience of, Muslims. Takaful tries to eliminate such elements which are against the teachings of Islam (such as interest or usury, gambling and excessive uncertainty) as much as possible from its contracts and thus gives religious comfort to Muslims. However, in reality, a considerable number of non-Muslims in the Southeast Asian countries, particularly in Malaysia, also enjoy the benefit of participating in takaful schemes. In view of this, it can be said that takaful is seen by the public as a more fair and transparent insurance system than conventional insurance. Figure 1 describes the growth of Family Takaful new business and Life Insurance new business for the past five years (2004-2008) in Malaysia. The compounded average growth rate of the former shows 31.7%, while the latter 8.3%. Figure 2 illustrates the increasing share of Family Takaful in the total of Life Insurance and Family Takaful market during the same period in the country. Bank Negara Malaysia, the Central Bank of Malaysia, recently announced that it would issue two further Family Takaful licenses to

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

[ 31 ]

â&#x20AC;Ś in reality, a considerable number of non-Muslims in the Southeast Asian countries, particularly in Malaysia, also enjoy the benefit of participating in Takaful schemes. In view of this, it can be said that Takaful is seen by the public as a more fair and transparent insurance system than conventional insurance.

P ROM OTING TAKAFUL FOR ALL

international players in 2010. By also taking this liberalisation into account, I have assumed and estimated that Family takaful will play a much larger role in the Malaysian market in the near future, if the Takaful operators could further enhance their service level to meet global standards. For example, Tokio Marine Group which has 130 years’ history and maintains an S&P AA rating has concluded a “bancatakaful” alliance with Citibank in Malaysia. The two international financial institutions jointly developed a Capital Protected Investment-Linked (CPIL) Takaful and, as a pilot project, achieved S$ 9.3 million sales through the bank’s 7 branches nationwide during the 30 day offer period in May 2009. The next launch is tentatively scheduled in August 2009.

it may be a good idea for takaful practitioners to promote takaful as “Halal Insurance” to all people – both Muslims and non-Muslims – as an effective, fair and transparent measure of risk mitigation and investment. Needless to say, it is the duty of takaful operators to make sure they deliver both Shariah compliance and customer satisfaction.

Nowadays, there are many takaful summits, seminars and conferences being held in many parts of the world. We have spent several decades trying to improve various permissible takaful business models to be “more” Shariah Compliant (“SC”). While we continue such discussions, the aspect of Customer Satisfaction (“CS”) should also be highlighted. Customers would not be satisfied if takaful Certificates None of us think that Halal (or policies) reach them many foods and Halal restaurants months after their application or takaful benefits (or claims) are are available only for Muslims. settled a year after the takaful In this context, it may be a events, even if the takaful schemes were fairly Shariah Compliant.

good idea for Takaful practi-

Compare the products and services provided by the likes of McDonald’s, KFC and Starbucks. The international food chains maintain their global service standard and, at the same time, take care of religious comfort by obtaining “Halal” certificates. Last year, I met Mr Bradley Brandon-Cross (Chief Executive, Principle Insurance Holdings, United Kingdom) in Kuala Lumpur, Malaysia and he inspired me to use the term “Halal Insurance” to further promote takaful. None of us think that Halal foods and Halal restaurants are available only for Muslims. In this context,

—Atsuhiko Ayabe is an Associate Fellow of the Institute of Islamic Banking and Insurance (London) and is currently General Manager, Market Research and Product Development, Hong Leong Tokio Marine Takaful Berhad in Malaysia.

tioners to promote Takaful as “Halal Insurance” to all people – both Muslims and nonMuslims – as an effective, fair and transparent measure of risk mitigation and investment. Needless to say, it is the duty of Takaful Operators to make sure they deliver both Shariah compliance and customer satisfaction.

[ 32 ]

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

:<**,:: >,»9, 9,(*/05. 6<; ;6 (*/0,=, >/(; 6;/,9: 4,9,3@ ;(32 ()6<;

;OL VWWVY[\UP[` MVY 0ZSHTPJ WYVK\J[Z PU [OL ^VYSK»Z ÄUHUJPHS THYRL[Z OHZ ILLU ^PKLS` [HSRLK HIV\[ )34, OV^L]LY PZ I\PSKPUN [OL IYPKNLZ [V THRL P[ OHWWLU (UK ^L»YL WYV]PUN [OH[ ^P[O [HSLU[LK WLVWSL HUK H JVTTP[TLU[ [V PUUV]H[PVU PU HSS [`WLZ VM :OHYPH»H ÄUHUJL

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

[ 33 ]

WYVÄ[HISL JVUULJ[PVUZ JHU IL I\PS[ IL[^LLU ÄUHUJPHS THYRL[Z HU`^OLYL VU LHY[O -VY TVYL PUMVYTH[PVU JVU[HJ[ info@BLME.com VY ]PZP[ BLME.com )HUR VM 3VUKVU HUK ;OL 4PKKSL ,HZ[ WSJ is YLN\SH[LK I` [OL -:(

Standard & Poor’s Islamic Finance Outlook 2009

The publication includes topical research on Islamic finance, our specific rating methodologies in this realm, and selected analyses. Standard & Poor's is pleased to announce the updated publication of its Islamic Finance Outlook 2009. To request your free copy, please email: fleur_hollis@standardandpoors.com www.gcc.standardandpoors.com Analytic services provided by Standard & Poor’s Ratings Services (“Ratings Services”) are the result of separate activities designed to preserve the independence and objectivity of ratings opinions. Credit ratings issued by Ratings Services are solely statements of opinion and not statements of fact or recommendations to purchase, hold, or sell any securities or make any other investment decisions. Accordingly, any user of credit ratings issued by Ratings Services should not rely on any such ratings or other opinion issued by Ratings Services in making any investment decision. Ratings are based on information received by Ratings Services. Other divisions of Standard & Poor’s may have information that is not available to Ratings Services. Standard & Poor’s has established policies and procedures to maintain the confidentiality of non-public information received during the ratings process.

[ 34 ]

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

RATING TAKAFUL AND RE-TAKA F U L

Standard & Poor’s Approach to Rating Takaful and Retakaful (Islamic Re/Insurance) Companies KEVIN WILLIS, NIGEL BOND & NEIL GOSRANI

he past five years have seen takaful (Islamic insurance) grow from a niche product servicing relatively limited demand – both by geography and client – to become a mainstream risk management offering. Particularly well established in the Far East, especially Malaysia and Indonesia, it is now growing rapidly in the Arab world, and expanding across Europe. With the development of takaful, the growth of retakaful was seen as inevitable as a necessary and Sharia compliant version of reinsurance. Standard & Poor’s Ratings Services has rated a number of Islamic insurers and reinsurers. In this article, we comment on the way that our rating criteria have been adapted to address the particularities of this product. We note that our ratings on takaful and retakaful companies do not address Sharia compliance. A Standard & Poor’s insurer financial strength rating is a current opinion of the financial security characteristics of an insurance organisation with respect to its ability to pay under its insurance policies and contracts in accordance with their terms.

• • • • • • • • •

Industry and economic risk Management and strategy Competitive position Enterprise risk management Earnings Investments Liquidity Capitalisation Financial flexibility

Generally, no single category dominates the assignment of, or action on, a rating. Relevant rating factors may include how well, in our view, the capital base is managed and how robust it is to absorb likely earnings volatility, and how the earnings stream is suited, in our opinion, to support liquid assets to enable prompt claims settlement. Standard & Poor’s generally publishes a detailed commentary in support of each rating, covering each We consider the effecof the analytical categories hightiveness of the regulalighted above. Below, we identify those aspects of the (re)takaful business tory regime that the model that may be subject to specific (re)takaful company is consideration, or special treatment in Standard & Poor’s analysis. working within.

Insurance supervisory bodies set minimum operational standards

Industry And Economic Risk

We consider the effectiveness of the regulatory regime that the (re)takaful company is working within. Insurance imise the risk of insursupervisory bodies set minimum opance company failure, We treat the mechanisms employed to erational standards at some level to but typically regulation deliver Islamic insurance solutions in a minimise the risk of insurance comShariah-compliant model as being a pany failure, but typically regulation in in any domicile only management decision over the operaany domicile only draws a line, below draws a line, below tion of the company business model. which companies may not operate. The religious context itself is not part How far above those minimum stanwhich companies may of the credit rating decision. dards a company chooses to operate not operate. is entirely a decision for owners/management. We observe that no special The analytical categories regulatory treatment is currently given to the (re)takaful sector relative to the conventional Standard & Poor’s insurer financial strength ratings genequivalents. International insurance supervisors, we unerally focus on the following categories of analysis: derstand, are generally consistent in their view that the

at some level to min-

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

[ 35 ]

RATI N G TAKAFUL AND RE-TAKAFUL

(re)takaful business model is, for their purposes, a “normal” insurance model and should be regulated consistent with other insurance models in terms of solvency/capital adequacy requirement and regulatory filings. We assess economic risk by reference to Standard & Poor’s sovereign ratings, and may adapt our assessment to reflect the likely potential demand for Islamic insurance in the operational domicile. For instance, we believe that countries with a large Islamic community are likely to have stronger economic/business drivers than where the Islamic population is smaller. We also consider this factor under the Competitive Position section.

Competitive Position Under this category, Standard & Poor’s seeks to assess the ability of the current and targeted business source to provide a lasting, profitable revenue stream to the insurer. We believe at this stage that takaful is still a developing business that has to prove itself against conventional insurance structures. However, contribution (premium) growth has typically been very rapid, which raises the question, in our view, whether the management and the systems of (re)takaful companies have the ability to keep up with this growth, and whether they have adequate capital availability to properly support it.

Management And Strategy Here we form a view on the skills of the management team in setting an effective operational framework to support the business development. Given the hybrid nature of the (re-)takaful structure, we also seek to understand how the goals of the takaful members, which are generally more focused on risk sharing, align with the goals of the shareholders, whose motives are usually more profit orientated.

Enterprise Risk Management

The takaful model typically includes a profit-share component to contributors as a necessary component, and to date we view the effectiveness of this client tie-in to future income for relatively new companies as unproven.

Where takaful companies are in direct competition with conventional insurers, as indeed most are, Standard & Poor’s generally assesses evidence of product demand and persistence before giving an opinion. The takaful model typically includes a profit-share component to contributors as a necessary component, and to date we view the effectiveness of this client tiein to future income for relatively new companies as unproven. As Islamic entities, takaful companies’ income streams can be constrained by the application of strict Shariah compliance to the nature of the risks being offered. We understand that in some circumstances, the risks accepted will be broken down into Shariah compliant and non-compliant components, with any profits from the latter being donated to charity, or eliminated in some form.

Enterprise Risk Management (ERM) is an adjunct to Management and Strategy, encompassing an assessment of the risk appetite and control framework of the company. In this regard, Standard & Poor’s approach to takaful companies is generally no different than to “conventional” insurance companies.

Earnings The assessment of the earnings quality for takaful companies can be more complex than for other companies in our view because of the often separate reporting of financial statements for takaful fund members and shareholders. As noted above, the concept behind takaful is mutual risk sharing, or co-operative risk pool participation.

The takaful funds, paid for by member contributions bear the losses of the individual member. This, of course, is the original insurance model: the many pay for the losses of the few. At the technical level, therefore, we consider that underwriting earnings may be expected to be more marginal in terms of profit contribution over the long term, as members may expect lower risk pricing on this shared risk basis, or a profit share distribution at some point from any surpluses. We note that the majority of takaful companies operate the wakala (or agency) model of technical fund management, under which the operational costs are borne by the shareholder, and recovered through a wakala fee levied on the takaful fund. This fee is usually set in advance of the underwriting year, and agreed with the Shariah council, often as a percentage of contributions.

[ 36 ]

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

RATING TAKAFUL AND RE-TAKA F U L

In measuring the performance of the takaful underwriting account, Standard & Poor’s will generally replace the wakala fee with the actual operational costs borne by the operator. We believe this gives a more comparable assessment of underwriting performance against conventional insurers, through analysis of the classic technical measures of gross and net combined ratios. A further factor we consider is the relationship between the wakala fee and the operational costs; any margin could, we think, represent a meaningful profit for the shareholder, or subsidy to the takaful fund.

very different for the takaful fund assets and the shareholder funds assets and we assess the strengths and weaknesses of both.

Capitalisation Capital adequacy Standard & Poor’s generally uses its risk-based capital adequacy model to assess the capital quality of the company. The key adaptation is to offset any takaful fund deficit against the shareholders’ capital in our analysis, as we understand that the shareholders are obliged to offer support for any such shortfall. Similarly, we will generally include any takaful fund surplus as part of the capital base.

One of the paramount features seen in the takaful model is that any deficit on the takaful fund is solely the responsibility of the members to fund. Nevertheless, under this hybrid structure, the shareholders will usually proOne of the paravide a cost-free loan (qaad hassan) to mount features the fund to finance any shortfall, recoverable from future surpluses. This thereseen in the takafore puts the onus on the operator to ful model is that price takaful risks correctly to enable the fund to meet claims liabilities. As part any deficit on of our rating analysis we assess how the takaful fund likely underwriting will be profitable over the long term, so as to provide a flow of is solely the funds to finance claims liabilities and responsibility of growth. The takaful funds also earn income from the invested assets. However, these invested assets are usually again managed by the operator, who takes a profit share from this activity - the mudharib share.

the members to fund.

Typically, the shareholder income statement reflects investment income earned on shareholder assets, the mudharib share and wakala fee from the takaful fund, less any operational costs. In its narrow sense, these items provide return to shareholders. However, Standard & Poor’s also includes the surplus (deficit) from the takaful fund, as calculated above, to measure a “conventional equivalent” return on equity.

Investments And Liquidity Standard & Poor’s analysis in these two categories is generally no different for takaful companies than for conventional insurance companies. We form a view on the credit and market risk qualities of the chosen investment portfolio, and the quality of its structure and management. The portfolio structures are likely to be

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

[ 37 ]

Reinsurance There are no notable adaptations for this component of our analysis, but we observe that Shariah boards are increasingly expecting takaful companies to seek Islamic reinsurance (retakaful) and availability may become an issue. Reserving Again, there are no notable adaptations for this component. Insurance is protection against the unknown, and we therefore look to determine to what extent there exist, in our view, conservative loss assessment processes that bear comparison with peers, and are vetted by independent actuaries, both general and family takaful funds.

Financial Flexibility Standard & Poor’s will also assess to what extent a company’s management is able to demonstrate its ability to raise money to support the entity. Shareholder funds are, in our view, the backbone of the business, and we generally assume them to be fully defrayable against any fund deficit, based on the respective qaad hassan loan facility. Typically under this facility, if a deficit on a takaful fund cannot be replenished, then the assets of the shareholders will be called upon to make good any shortfalls. — Kevin Willis and Nigel Bond are directors and Neil Gosrani is an associate at ratings agency Standard & Poor’s

Salaam Halal insurance was launched in July 2008.

It was the first Shariah compliant UK insurance company set up to meet the insurance needs of British Muslims. The company launched with a Comprehensive motor Takaful product, followed by a home contents and buildings Takaful product in April 2009. With competitive pricing, an ethical investment policy guided by Shariah principles and launch on a prominent comparison website, the products are attractive to both Muslim and non-Muslim customers.

For further information, please contact Abid Shakeel, Strategic Development Director at Salaam Insurance. Email ashakeel@salaaminsurance.com Mobile 07824-662314

TV Adverts

Press

Outdoor Posters

Mailings & leaflets

Online Banners

[ 38 ]

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

ENGAGING TA L E N T

Engaging Talent – A Takaful Industry Perspective

FUWAD BEG he takaful industry is, as we all know, many centuries old. However, one of the first takaful companies to come into recent existence is Syarikat Takaful Malaysia Berhad (Takaful Malaysia), which was incorporated on 29 November 1984. Since that time the landscape has changed so much so that it is now unrecognisable. The drivers for the growth in the takaful industry, according to Ernst and Young’s World Takaful Report in 2008, has come not only from high economic growth, an increase in GDP per capita, a developed asset-base and a boost in youthful demographics but also an increased and sophisticated desire for Shariah compliant offerings within the market place. But what a difference a year makes with both, economic growth slowing considerably in the past year and a decrease in assets it would be interesting to see how Ernst and Young would interpret the current state of play within the industry and predictions for the future. Tough times have certainly been seen in the industry recently especially within immature markets with the UK’s only takaful company, Salaam Insurance, deferring its third round of fund raising and decreasing its head count. Although it is a widely held view that this is a reaction to market conditions rather than a long term view, simply because the UK Europe, Turkey and even Russia are regions that investors and companies alike with the appetite for developing and building Shariah compliant companies, simply cannot ignore in the long run. Currently the GCC is certainly the biggest market followed by Malaysia and South East Asia and as far as future predictions go, both the takaful and the re-takaful industries are here to stay and will inevitably grow, especially when companies such as Noor Takaful, headquartered in Dubai, plans to grow exponentially within the region and in the long term look to develop on a global basis; although at what speed is yet to be determined. Effect on Human Capital The demands and effects on human capital within takaful companies and the industry as a whole are, and will be, considerable. Talent is the main driver for any or-

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

[ 39 ]

ganisation and the old adage that your most valuable resource is your human resource rings very true for the industry. After the current financial storm has settled and companies begin to remove themselves from the self determined holding pattern, what may be seen is a growth phase unprecedented within the takaful and re-takaful industry particularly within the GCC, Malaysia and South East Asia but also within the more immature markets of Europe. This expected demand has many implications for organisations at the forefront of growth. The biggest implication will come from the level of sophistication of human resource departments of these companies and their ability not only to engage current employees but also to engage, attract and retain the “superstars” that are within the market place. The competition for talent will not only come from the new takaful / re-takaful companies that are within the landscape but also from conventional companies who wish to open “Islamic windows” and who by industry standards are the biggest capitalised, mainstream and who understand and have a much more sophisticated dialogue with talent. Engaging Talent One of the ways in which takaful companies can engage talent is through the development of a talent brand and reputation. We all have heard positively about empowerment, pay grades or benefits in other companies that we have not worked for but aspire to work for. A litmus test of employee engagement, although not empirically proven is, if your employee aspires to work for someone else. If so then you have lost on many levels something of great value and are clearly not engaging your talent. The engagement process does not just happen and it cannot happen on a superficial level, but more so an analysis of every layer of the organisation needs to be done and developed so much so that it positively effects performance, retention and ultimately provides value and is a positive driver of the relationship between the company and the employee.

E N G A G I N G TALENT

The redesigning of job functions where the employee is empowered and given much more responsibility and control especially in a downturn is an example of a positive driver. The innovative use of existing talent, particularly within managerial and sales functions improves engagement and contributes to the satisfaction and retention of employees. It also provides the company with ability to utilise talent more effectively and prevents an overlap of unnecessary competencies which are a waste on organisational resources.

velop talent maps. By doing so companies have at their disposal an updated understanding of what skills and competencies they currently have and what are required. This mapping of talent provides the organisation with the ability to train and hire effectively and provides it with a lean method of functioning that ultimately pays dividend to the bottom line.

Human Resource Departments Training However, all of the above cannot be done without imUsually in tough economic times the training budgets petus which has to ultimately come from senior manare usually one of the first to go within Takaful compaagement, but more importantly implemented by human nies especially if revenues and sales are stagnant. Howresource departments. ever, the continued use of training for employees is also a key element in the engagement of talent both interThe term personnel, not so long ago, was seen by emnally and externally. It is truly seen ployees as “person–hell” which embodied as a value driver and from a longa tyrannical department within the comterm perspective provides current pany which you must have the least to do employees with the increased skills with. The function of the department was Unfortunately, and competencies to function better to create one bad policy after another and within their jobs and thus gives the which unfortunately did not completely there are many organisation a competitive advanunderstand the company as a living, takaful and retage. breathing and growing organism. Hiring There is a “war for talent” and nowhere more so than within the takaful and re-takaful sector. Thankfully the sector is considered to be an attractive proposition especially in countries such as the GCC where a certain level of economic stability presides. However, with the growth requirements over the next five years predicted to be quite considerable the smart companies are ones which engage with talent and build a talent brand, making themselves more attractive than their competitors on a multi-functional level which includes compensation, benefits and reward; culture creation and employee development.

takaful companies which still do not understand the difference between personnel and human resources and what the implications of non-engagement of talent, both internally and externally, really mean.

The smartest companies however will also be the ones which assess and analyse which types of competencies are required to drive the business forward not just a year from now but three to five years from now and aggressively build their talent brand to be focussed, constant and consistent upon those required skills sets. Talent mapping Takaful organisations new and old would do well to de-

Unfortunately, there are many takaful and re-takaful companies which still do not understand the difference between personnel and human resources and what the implications of non-engagement of talent, both internally and externally, really mean.

Human resource directors and their departments not only need to create, develop and maintain policies and procedures that allow the organisation and employees to function collectively, smoothly and effectively, but they need, especially in the case of new start-up companies to develop soft intangible value and create cultures that not only foster and increase performance, but constantly and consistently motivate employees so they actually want to get up every morning and go to your office as opposed to a competitors. Compensation For the takaful sector to compete on a global level it must not only understand but implement value and trust based human capital strategies that are in line with or better than its conventional competitors. One of the most relevant issues of the day and which has a direct focus on the bottom line is executive compensa-

[ 40 ]

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

Together ... we can ! Tunis

Labuan

Istanbul

Beirut

Algiers

Dakar

Head office : Rue du Lac de C么me, Les Berges du Lac Tunis -1080, Tunisia Phone : (+216) 71 86 03 55 Fax : (+216) 71 86 10 11 E-mail : general@bestre.com.tn

Website: www.Best-re.com A.M.Best : A- Outlook Stable

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

Standard & Poor's : BBB+ Outlook Stable

[ 41 ]

[ 42 ]

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

ENGAGING TA L E N T

tion. What we see in mature regions such as the GCC is a disarray of pay scales, job titles and compensation packages. In most GCC countries your nationality dictates your pay grade and employees education, competencies, experience and company pedigree are not always qualified in determining job functions, salary and benefits structures. This practice although positive for staffing budgets in the short-term, in reality disables an organisation from potential star talent which expects to be compensated in a qualified and sophisticated manner. An example of this is seen when GCC takaful companies wish to recruit and attract talent outside of their geographical area.

Many find that their internal pay scales are not competitive at all and such that prospective candidates earn a lot more than their current employees and in one particular case double that of the CEO of the company. This misalignment causes distress through the ranks of employees and can have a detrimental effect on performance, culture and ultimately attrition, all of which inturn are a costly to the company.

Give employees what they want or a reasonable choice and they feel much more valued, and as we know value can be a good driver for performance. Innovation can be as simple as having a fridge in the office, but more importantly the fundamentals of innovative reward strategies look more towards, health care provision and maximisation of time for the employees, career coaching and counselling, guaranteed competency development and training. Innovative reward practices, common pay scales and true reflections of self worth are the keys to unlock potential within employees and ultimately motivate them.

Conclusion If success is defined by profits alone then companies such as TakaMany find that their internal pay ful Malaysia which have grown from scales are not competitive at all and RM 13.0 million to RM 3.481 billion such that prospective candidates from 1985 to 2007 are certainly earn a lot more than their current successful. But we must remember employees and in one particular that the lack of competition in the case double that of the CEO of the company. This mismarket place as well as a captive customer base are alignment causes distress through the ranks of emmost likely the key to the revenues that they made. The ployees and can have a detrimental effect on current market is very different and will be different performance, culture and ultimately attrition, all of again in 3, 5 and 10 years. The companies that recogwhich in-turn are a costly to the company. nise this and further develop balanced and sophisticated human resource strategies in Reward both the engagement and manageReward is so much more than ment of talent will not only drive Reward is so much more money and comes in many forms. performance, create value and comthan money and comes in When executives reach their internal petitive advantage but will be the pay grade they tend to look at other “new” Takaful Malaysia’s of the fumany forms. When execufactors within their organisation that ture and a have longevity in what tives reach their internal will allow them to develop a sucwill inevitably be a crowded market pay grade they tend to look cessful and rewarding career and place. at other factors within their life. The challenge therefore, for compaorganisation that will allow Some companies realise this and nies in the sector and especially them to develop a successoperate a varied but innovative aptheir human resource functions, will ful and rewarding career proach to providing compensation be to understand the complexities and life. and benefits, which can be very cost of the market and align them to the effective. Perks as they were once strategic plans of the company but known, gave the usual expense acat the same time be flexible enough count and lavish luncheons or dinto be, if not ahead of the curve, ners but innovative solutions to compensation and then to definitely ride it. benefits come in many guises and is not as burdening —Fuwad Beg is Director of to the bottom line as you might think. Yasaar Human Capital based in Dubai

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

[ 43 ]

[ 44 ]

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

TAKAFUL / RE-TAKAFUL PROVI D E RS

The Growing Takaful / Re-Takaful Providers World C OM PA N Y N A M E

OPERATION

Iran Iran Al Barakh Takaful Co. Jordan First Insurance Co. Jordan Islamic Insurance Co. Jordan 1st Takaful Insurance Co. Kuwait Ain Takaful Insurance Co. Kuwait Al Safat Takaful Co. Kuwait Al-Muthanna Takaful Insurance Co. Kuwait Gulf Takaful Insurance Co. Kuwait Moallem Insurance Company Kuwait National Takaful Insurance Kuwait Tâ&#x20AC;&#x2122;azur Kuwait Takaful International Kuwait Takaful International Kuwait Kuwait Takaful Islamic Insurance Company Kuwait Warba Takaful Insurance Co. KSCC Kuwait Wethaq Takaful Kuwait Al Aman Takaful Insurance SAL Lebanon Takaful Insurance Co. Libya International Insurance Co. Luxembourg Takafol S.A. Luxembourg Agilentrisk Limited Malaysia CIMB Aviva Takaful Berhad Malaysia Etiqa Takaful Berhad Malaysia Hong Leong Tokio Marine Takaful Bhd Malaysia MAA Takaful Malaysia Prudential BSN Takaful Berhad Malaysia Syarikat Takaful Malaysia Berhad Malaysia Takaful Ikhlas Malaysia SMAI Isamique Mauritania Taamin assurances Islamiques Mauritania First Takaful Insurance Pakistan Pak Qatar Family Takaful Pakistan Pak Qatar General Takaful Pakistan Pak-Kuwait Takaful Company Limited Pakistan Takaful Pakistan Limited Pakistan Al-Takaful Palenstinian Insurance Co. PLC Palestine Takaful Company Palestine General Takaful Company GTC Qatar Islamic Takaful Qatar Qatar Islamic Insurance Co. Qatar Al Ahlia Insurance Co. for Cooperative Saudi Arabia Insurance Al-Sagr Saudi Insurance Co. Saudi Arabia Al-Aman cooperative insurance (Al-Rajhi) Saudi Arabia Allied Cooperative Insurance Group Saudi Arabia (ACIG) Al-Tawfeek Co. Saudi Arabia Arab Eastern Insurance Co. Ltd, E.C. Saudi Arabia (registered) Razi Insurance Co.

Full Takaful Operators

Algeria Takaful Australia Australia Islamic Takaful & Re-Takaful Bahamas AIG Takaful-Enaya BSC Bahrain Allianz Takaful Bahrain Al- Salam Islamic Takaful Co. Bahrain Bahrain Islamic Insurance Co. Bahrain Sarikat Takaful al-Islamiyah Bahrain Solidarity Islamic Takaful & Retakaful Co. Bahrain Takaful International Co. Bahrain Takaful Islamic Insurance Co. EC Bahrain T'azur Co BSC Bahrain Fareast Islami Life Insurance Co. Ltd Bangladesh Islami BIMA (Takaful-Megna Life Bangladesh Insurance) Islami Insurance Bangladesh Limited Bangladesh Islamic Commercial Insurance Co. Bangladesh Prime Life Insurance Limited Bangladesh Takaful Islami Insurance Limited Bangladesh Insurans Islam TAIB Brunei Takaful BIBD Sdn Bhd Brunei Takaful IBB Berhad Brunei Takaful IDBB Brunei Arab Orient Takaful Insurance Co. Egypt Egyptian Banks for Takaful Insurance Co. Egypt Egyptian Saudi Home Insurance Egypt Wethaq Takaful Insurance Co. Egypt Takaful Company Gambia Metropolitan Insurance Co. Ltd Ghana Asuransi Mubarakah Indonesia Asuransi Takaful Keluarga Indonesia Islamic Insurance Society Indonesia PT Asuransi Tri Pakarta Indonesia PT Syarikat Takaful Indonesia Takaful Umum Indonesia Alborz Insurance Co. Iran Asia Insurance Co. Iran Bimeh Iran Iran Bimeh Parsian Iran Bimeh Sina Iran Bimeh Toseh-eh Iran Dana Insurance Co. Iran Day Insurnace Company Iran Export and Investment Insurance Iran Company (EIIC) Hafez Insurance Co. Iran Karafarin Insurance Co. Iran Mellat Insurance Company Iran Omid Insurance Co. Iran Salama

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

COMPANY NAME

Saman Insurance Co.

[ 45 ]

Putting dynamic Retakaful in motion Introducing Al Fajer Re, one of the worldâ&#x20AC;&#x2122;s largest Retakaful companies, with a Financial Strength rating of A- (Excellent) from AM Best. Our strength lies in solid foundations supported by strong capital, strategic thinking inspired by superior management and the assurance of outstanding service. Focusing upon Property and Casualty reinsurance, Al Fajer Re is heralding a dynamic dawn in Retakaful. Contact us on: www.alfajerre.com

The future in Retakaful is here

[ 46 ]

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

TAKAFUL / RE-TAKAFUL PROVI D E RS C OM PA N Y N A M E

OP ERATION

Saudi Arabia Saudi Arabia Arabian Malaysian Takaful Saudi Arabia Arabian Shield Insurance Company Saudi Arabia Bank Al Jazira Takaful Taâ&#x20AC;&#x2122;awuni Saudi Arabia BUPA Arabia Saudi Arabia Commercial Services Company Arabia Saudi Arabia Company for Cooperative Insurance Saudi Arabia Family Takaful Saudi Arabia Global Islamic Insurance Co. Saudi Arabia Gulf Cooperation Insurance Company Ltd Saudi Arabia Gulf Union Insurance and Risk Saudi Arabia Management Company E.C. International Islamic Insurance Co. Saudi Arabia Islamic Arab Saudi Arabia Islamic Corporation for Insurance of Saudi Arabia Investment and Export Credit Islamic Insurance Co., Riyadh Saudi Arabia Islamic International Co. Insurance Saudi Arabia Islamic International Insurance Co. Saudi Arabia (Salamat) Islamic Security Saudi Arabia Islamic Universal Insurance Saudi Arabia Mediterranean and Gulf Insurance and Saudi Arabia Reinsurance Company (MEDGULF) B.S.C. Saudi Arabia Saab Takaful Saudi Arabia Salama Saudi Arabia Sanad For Cooperative Insurance and Saudi Arabia Reinsurance Company Saud Re for Cooperative Insurance Co. Saudi Arabia Saudi Arabian Insurance Company BSC Saudi Arabia Saudi General Insurance Company EC Saudi Arabia Saudi National Insurance Co. BSC Saudi Arabia Saudi United Co-operative Insurance Saudi Arabia Takafol Islamic Insurance Co. Saudi Arabia Tawuniya Saudi Arabia Trade Union Insurance Co. Saudi Arabia UCA Insurance Co. E.C. Saudi Arabia Islamic Takaful & Re-takaful Co. Saudi Arabia & Bahamas Salama Senegal Sosar Al Amane Senegal Syarikat Takaful Singapore Amana Takaful Ltd Sri Lanka Ceylinco Takaful Limited Sri Lanka Al Salama Insurance Co Sudan Al-Baraka Sudan Blue Nile Insurance Co Sudan El Nilein Insurance Co. Sudan General Insurnace Co. Sudan Islamic Insurance Co. Sudan JUBA Insurance Co. Sudan Middle East Insurance Co. Sudan National reinsurance Co. Sudan Arabia Insurance Cooperative Co.

Arabian American Insurance Co. ESC

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER

[ 47 ]

COMPANY NAME

OPERATION

Sudan Sudan Sheikhan Insurance & Reinsurance Sudan The New Sudan Insurance Company Ltd Sudan The United Insurance Co. Sudan Watania Co-operative Sudan Al Aqeela Takaful Co. Syria Aman Syria for Takaful Insurance Syria Noor Takaful Insurance Co. Syria Syrian Qatar Takaful Co Syria Finansa Life Assurance Thailand Dhipaya Insurance Public Company Ltd. Thailand Kamol Sukosol Insurance Company Ltd Thailand Muang Thai Life Assurance Co. Ltd Thailand Takaful T & T Friendly Society Trinidad & Tobago Ihlas Sigorta A.S. Turkey Isik Insurance Co. Turkey Abu Dhabi National Takaful Co. UAE Dubai Islamic Insurance & reinsurUAE ance Co. Methaq Takaful UAE Mithaq Lil Takaful UAE Noor Takaful UAE Salama UAE Takaful Al Emarat UAE Takaful House Company UAE The Islamic Arab Insurance Co. UAE Salaam Halal Insurance UK Yemen Islamic Insurance Company (YSC) Yemen Red Sea Insurance Company Limited Savana Insurance Co. Ltd

Re-Takaful Companies Islamic Takaful & Retakaful Co. (IRTCo.) Bahamas Hannover ReTakaful B.S.C.

Bahrain

Solidarity Islamic Takaful & Retakaful Co. Bahrain

PT Reassuransi Internasional Indonesia Indonesia

Iran Kuwait Asean Re-Takaful International Malaysia MNRB Retakaful Berhad Malaysia Islamic Takaful & Re-takaful Co. Saudi Arabia Islamic Takaful and Re-Takaful Co. (ITRCo.) Saudi Arabia Tokio Marine Nichido Retakaful Pte Ltd Singapore National Re-insurance Co. (NRICo.) Sudan Munich re Re-Takaful Sheikhan Insurance & Reinsurance Sudan Sudanese Insurance & Reinsurance Co Sudan Swiss Re (Re-Takaful) BEIT Iaadat Ettamine Tounsi Saoudi Tunisia Re-insurance (B.E.S.T. Re) ACR ReTakaful Holdings Limited UAE Dubai Islamic Insurance & UAE reinsurance Co. Takaful Re Limited UAE Amin Reinsurance Company

Al Fejr Retakaful Insurance Co.

TA KA F U L / RE-TAKAFUL PROVIDERS C OM PA N Y N A M E

OPERATION

COMPANY NAME

Conventional Insurers Operating Takaful Windows

Takaful Education & Training Institutes

The Cooperators

Canada Indonesia Singapore Singapore Singapore Singapore

Gulf Insurance Institute (GII)

Bumiputera 1912

Ampro holding Singapore Pte Ltd HSBC

Keppel Insurance NTUC Income

The Bahrain Institute of Banking and Finance (BIBF)

OPERATION

Bahrain Bahrain

Islamic Banking and Finance Institute Malaysia Malaysia (IBFIM)

Islamic Finance Training AlHuda-CIBE

Institute of Islamic Banking & Insurance (IIBI) INCIEF

International Islamic University (IIU)

Malaysia Pakistan UK Malaysia Malaysia

Baitul Imtiaze house of e xcellence

Creative Design Solutions • London

Corporate Identity & Literature • Brochures • Anuual Reports • Books Information/promotional packs • Magazines • Diaries • Calendars • Cards… When there is no direct contact between you and your customers, the customers first ‘buy’ your advertising, literature, brochures, letterheads – in short, YOUR CORPORATE IMAGE. The more professional looking your comapny literatures, the better chances you have of creating a more LASTING IMPRESSION on your potential customers, and putting their TRUST in your company and service… With GOOD DESIGN of your corporate image/literature… • create the right IMPRESSIONS on your audience • make your company’s VALUE visible • enable your company/image to ESTABLISH itself effectively in the market • DIFFERENTIATE and make HIGHER RECOGNITION of your company and your services Just as you might describe a piece of printed literature as ‘fussy’, ‘trendy’, or ‘elegant’, so too does your customers perceive similar sorts of qualities in your identity, advertising, literature, etc. THE IMPORTANT DIFFERENCE, however, is that whilst you might realise that you are describing the qualities of a printed item, your customer is, consciously or subconsciously, attaching those qualities to your company and to your services.

With our creative design, we can make your products/services look and feel more desirable and value added than those of your competitiors…

[ 48 ]

contact

imtiaze@boltblue.com

INTERNATIONAL TAKAFUL SUMMIT 2009 PRIMER