10 months on, SHC restriction on implementation of Takaful rules remains

Provision for Islamic insurance windows said to be included on ministry’s insistence.

KARACHI: It’s been almost 10 months since the Sindh High Court restrained the Securities and Exchange Commission of Pakistan (SECP) from implementing Takaful Rules 2012 that allowed conventional insurance companies to sell Islamic – or Takaful – insurance products through separate windows.

The court has yet to give its final verdict on a petition of five Takaful operators in which they contended that the provision allowing conventional insurance companies to start selling Takaful products is against Shariah law.

But was there any contentious feature in the revised Takaful rules other than the provision for Islamic insurance windows?

“Revised rules did not simply address the window issue, but also corrected many anomalies in the Takaful 2005 Rules by restricting many non-Shariah-compliant practices by existing Takaful players,” said Sidat Hyder Morshed Associates CEO Omer Morshed, while speaking to The Express Tribune from London on Thursday.

A professional actuary with 39 years of experience, Morshed served as chairman of the committee that reviewed Takaful rules and incorporated the provision for Islamic insurance windows in 2009 at the request of the SECP – the apex regulator of the country’s insurance sector.



“One specific provision relating to equity between participants in a Takaful fund was taken out by the SECP at the request of Takaful companies, which is something I believe to be of utmost importance,” he added.

Contrary to the general perception, the decision to incorporate windows in order to increase Takaful penetration in the country was actually taken by the Ministry of Commerce and the committee’s mandate was simply to provide for the decision in the rules, he says.

What went behind the scenes?

The committee issued a report that was signed by all seven members, including the chairman, in 2009. After that, Morshed says, he drafted the rules with the support of committee member Dr Mumtaz Hashmi, who served as adviser to the SECP.

These were then discussed with all Takaful companies and all stakeholders agreed on a final version of Takaful rules.

“My work style is to arrive at a consensus, which I managed to do with all Takaful companies. But later on, when the SECP made significant changes to the version I had agreed with the Takaful companies, I objected in writing many times, which is a matter of record,” he says.

He adds that he disassociated himself from the Takaful Rules 2012 as a result of the disagreement with the SECP.

“The original draft that I wrote in 2009 had higher capital requirements for companies seeking to write both conventional business and Takaful business through windows. The SECP took this provision out despite my written objections,” Morshed says, adding he shares the view of Takaful players as far as their demand for higher capital requirements for companies doing both kinds of business is concerned.

Future outlook

Big players in the conventional insurance segment, including State Life Insurance Corporation and Jubilee Life Insurance, have already shown their eagerness to launch Takaful windows if the court turns down the Takaful operators’ petition.

If the court clears Takaful Rules 2012, Morshed says, up to 20 conventional insurance companies (life and non-life) are likely to introduce Takaful windows.

But only serious players will set up Islamic insurance operations, he adds, if the provisions that the review committee had originally put in place are restored, particularly the one concerning increased capital requirements for entities with both Takaful and conventional business. “Even then, I believe seven to eight companies will come in.”

The paid-up capital requirement for a conventional life insurance company under existing rules is Rs500 million. It is Rs300 million for a conventional non-life insurance company. The paid-up capital requirements for general and family Takaful companies are not different from their conventional insurance counterparts.

He says Takaful companies have made Shariah an issue, which is unjustifiable. The main company leading the case sells Takaful policies through branches of conventional banks, which speaks volumes about its argument, he states.

“The purpose of Takaful is to offer an Islamic alternative to as wide a population as possible, and not simply allow it to be used as a prerogative for a limited number of entrepreneurs to make money in the name of Islam,” Morshed says.

Published in The Express Tribune, May 31^st, 2013.

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