Distrustful competitors: ‘Conventional insurers will crush the Takaful sector’

Takaful operators finally break silence over the new rules.

KARACHI:

After a long spell of public silence over the recently introduced rules for Islamic insurance, or Takaful, in Pakistan, one of the five Takaful companies has finally gone public in its criticism of the policy revision that will allow conventional insurance companies to set up parallel windows for Islamic insurance operations.

In an interview with The Express Tribune, Pak-Qatar Family and General Takaful Senior Manager Syed Adnan Hasan said that the establishment of Islamic insurance windows by conventional insurance companies will ‘crush’ the business of existing Takaful operators.

All Takaful companies had boycotted the ceremony held in July where the Securities and Exchange Commission of Pakistan (SECP) Chairman Muhammad Ali officially announced the promulgation of the Takaful Rules, 2012.

While Takaful companies refused to speak to the media on this issue, they went to court against the revised rules which, they claimed, would distort the Takaful businesses in Pakistan by letting conventional insurance companies conduct it in a manner “against the principles of Shariah.” Subsequently, on August 2, the Sindh High Court restrained the SECP from implementing the new rules.

“Insurance companies, by using their existing corporate structure and branch network for Takaful windows, will actually crush current Takaful operators,” Hasan said. He added that the prospective new entrants will take undue advantage of the low cost of entry in the wake of the new laws by setting up Takaful windows. “It is like letting somebody join a race just a few steps away from the finishing line.”

The Takaful Rules, 2005, which governed the Islamic insurance sector in Pakistan before the promulgation of the new rules, did not allow conventional insurance companies to sell Takaful products. Currently, there are two family Takaful and three general Takaful companies in Pakistan. As for the conventional insurance sector, seven life insurance and 30 non-life insurance companies are operating in Pakistan.

Takaful operators collected Rs3.3 billion in gross premiums in 2011, which is equal to 2.8% of the gross premiums of Rs119.7 billion that conventional insurance firms received in the same period.

“The growth rate of Takaful is good. However, we still have a long way to go. In a country with the insurance penetration of 0.4% of the gross domestic product (GDP) after 65 years of its birth, a lot still remains to be done. We have little tendency to save,” he said.

Premiums of Takaful companies grew at an average of 91.6% year-on year between 2006 and 2011. In contrast, the average annual growth rate of conventional insurance companies over the same period was a modest 16.5%.

“Conventional insurers must set up full-fledge Takaful entities (as subsidiaries) while satisfying the minimum paid-up capital requirement to be decided by the SECP,” Hasan said. He added that all the other requirements that existing Takaful players had to meet must be satisfied by any new player entering the Takaful segment. “No shortcuts should be allowed.”

In an interview with The Express Tribune last month, State Life Insurance Corporation of Pakistan Chairman Shahid Aziz Siddiqi had indicated that his company – which is the largest player in life insurance in the country with over Rs293 billion in total assets by the end of 2011 – was likely to launch Islamic insurance products by setting up a Takaful window within a year.

“Those who are called ‘giants’ may be so, but in their own industry, which is conventional insurance. Only time will tell who the giant in the Takaful segment is,” Hasan said in an apparent reference to State Life’s plans to enter the Islamic insurance segment.

“Their commitment will simply be with those products/businesses which seem profitable, irrespective of whether they are Shariah-complaint or not,” he said.

When contacted, a spokesperson for State Life refused to speak on the issue.

Published in The Express Tribune, August 29^th, 2012.