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The GCC Takaful Market: Evolving Fast
Sohail Jaffer, FWU

Despite the slowdown, and a tough year for a regional financial industry affected strongly by the socio-political uncertainties, the Takaful market remains promising and is expected to be a US$12 billion global industry by the end of 2011: an increase of 31% from the figures achieved in 2010 as estimated by the World Takaful Report 2011 by Ernst & Young.

The GCC insurance market is set for double digit growth in the next four years. Alpen Capital estimates a 20% CAGR to reach US$37 billion from US$17.8 billion in 2011.

The UAE and Saudi Arabia are the two biggest markets in the region with a forecasted combined share of 75%, while Qatar is expected to register the fastest growth at a CAGR of 30% between 2011 and 2015, according to the report.

Non-life insurance will remain dominant and will comprise 86% of total premium in 2015, while life insurance will be 14%, contributing US$5.2 billion in 2015.

The report said that increasing GDP remains the primary growth driver. While non-life insurance is expected to hold a significant portion of total premiums, life insurance premiums will grow at a higher CAGR. The non-life segment is expected to grow at a CAGR of 19 % from 2011 to 2015 while life premiums will grow at a CAGR of 25.1% during the same period. Governments across the GCC have been proactive in supporting economic growth mainly through investments in the infrastructure sector. According to the National Bank of Kuwait (NBK), GCC government spending could rise by approximately 22% in 2011, thanks to ambitious medium-term development programs in Saudi Arabia, Kuwait and Qatar.

Life insurance will also witness a significant growth with increasing per capita income and favorable demographics. The region has a very young population with approximately 70% in the 15-64 year old bracket. According to World Bank forecasts, the total population of the GCC will grow by an average of 2.4% per year in the next five years, taking it to 45.6 million in 2015.  As the young population in the region matures, the demand for financial products is likely to see a tremendous increase.

“Our forecasts show that life insurance density will grow at a CAGR of 22.2% from 2011 to 2015, increasing to US$113.5 from US$50.8,” the Alpen report noted.

Takaful’s growing share of the GCC insurance industry

With a focus on Takaful, Saudi Arabia tops the world rankings, holding 75% of total global contributions, according to the latest released figures for 2009: followed by Malaysia and the UAE, which is emerging as one of the most developed Takaful markets in the region.

The smaller markets of Qatar, Bahrain and Kuwait are also witnessing considerable growth, fuelled  mainly by the expected boom in infrastructure and energy projects. Kuwait has seen the number of Takaful operators triple in less than three years from four to 12, but remains relatively underdeveloped, although the country  is home to very substantial Shariah compliant financial institutions.

Oman has been slower to embrace Islamic finance, and has joined  the Takaful ranks only very recently. The Capital Market Authority of Oman (CMA), the national regulator, has granted approval for the first Takaful operator (Al Madina Gulf Insurance) but  the market might take time to pick up, as only fully-fledged Takaful company will be allowed to offer Shariah compliant products, and Islamic windows for conventional insurance companies are not permitted in the sultanate. “Insurance companies which are looking to offer Islamic products will now need to convert to exclusive Takaful firms,” said an official from the CMA.

Takaful will benefit further from the boom predicted for the GCC insurance industry, with its market share set to grow as competition intensifies between Takaful operators and their conventional peers. The increasing awareness and acceptance levels of the Takaful concept, and the business opportunities created by compulsory lines and corporate business, are providing a sound foundation for the Islamic insurance industry to take a leap forward.
To date, the number of Takaful operators continues to grow, with an estimated 77 Takaful operators in the GCC, according to the World Islamic Insurance Directory 2011.

Family Takaful: The golden egg

Family Takaful is emerging globally  as a fast-growing component of Shariah compliant insurance, as per the first edition of the Milliman Global Family Takaful Report 2011: which estimated total Family Takaful contributions of US$1.7 billion in 2010 – or 20% of total global Takaful gross written premiums. The segment remains under-penetrated in the GCC however, and it is estimated to currently contribute only 5% within the MENA region, compared to 77% in Malaysia.

In the GCC, Family Takaful — like its conventional life insurance counterpart — remains modest  but is growing strongly, with an  86% CAGR between 2004 to 2009.

Family Takaful is believed to be a major contributor to the increase in life insurance penetration rate in the GCC: one of the lowest in the world due to the hesitance of most Muslims towards taking up conventional life protection.

The ability of Takaful operators to increase insurance penetration is critical to their success. Family Takaful currently presents a rewarding opportunity for all.  It provides the Muslim population with alternative protection and investment options, and the Takaful insurers with increased profitability.

Financial planning is another area that has grown in importance, creating a new window of opportunity for Family Takaful business. As family wealth has increased so has the desire to allocate some of that wealth to future generations.

Wealth management divisions in banks are now increasingly starting to include a suite of Family Takaful-linked investment products for both lump sum and regular savers. Hence Islamic savings, education, marriage and retirement plans that combine investments with protection benefits have started to become attractive. More banks and Takaful operators in the GCC are now embracing a segmented approach offering tailor-made solutions based on the customer’s lifecycle needs, and in accordance with the individual’s risk profile.

Rising awareness levels have made GCC customers more demanding in terms of product choice and experience-based advice, and financial institutions have realized the need to adopt an ongoing innovation strategy, steering away from the mass market towards a more segmented approach. Consequently, more personalized products are being introduced, such as critical illness cover.

Abu Dhabi Islamic Bank (ADIB), a leading Islamic financial institution in the UAE, announced last October that it now offers pioneering breast cancer Takaful cover to all its Dana Women’s Banking customers.

Exploring new distribution channels

Takaful operators continue to look out for more efficient distribution channels to source  their Shariah compliant protection products, but bancaTakaful is gaining ground in the GCC, and accounts today for a significant portion of  sales, offering an attractive and cost effective distribution channel, especially for personal lines.

According to the GCC Takaful Industry report, there are still some opportunities to be explored in the bancaTakaful arena to maximize the use of this promising channel. Developing dedicated sales teams offering Takaful products, giving them incentives on par with selling conventional products, designing customized long-term investment-linked savings and pension products, as well as investing in technology to deliver high customer service standards, are some of the areas to be improved on to widen outreach and increase customer retention.

“We are hoping to play a major part in the UAE Takaful segment’s growth by offering a comprehensive system of outstanding Islamic insurance services that support the stability and security of the local community. This move consolidates our position as market leaders in Bancassurance, which reveals the strong partnership between banks and insurance companies,” said Hussein Al Meeza, CEO and managing director of AMAN Insurance.

Recent additions to the Bancatakaful model in the GCC in 2011 include the recently-established Wataniya, a Takaful subsidiary of Abu Dhabi National Islamic Finance, the Islamic arm of the Abu Dhabi National bank.

Noor Takaful has pioneered an unprecedented business model to increase the distribution of its Takaful products. According to a memorandum of understanding signed  in June 2011 between Dubai SME (the agency of the department of economic development mandated to develop small and medium enterprises) and Noor Takaful, the two institutions will partner to offer franchises to UAE nationals and sell Noor Takaful-branded products across the UAE.

Entrepreneurs can work under any of three different franchisee arrangements offered by Noor Takaful: as a home-based agent, as a business start-up incubated in SME, or as a fully-fledged business operating independently.

“This will be the first time a franchising concept within the insurance industry will be available in the region.” said Dr. Ahmed Al Janahi, the managing director of Noor Takaful. “We expect this relationship to initially enhance awareness levels on Takaful.”

Towards consolidation

One of the major challenges in the GCC Takaful market remains its fragmentation, with an increasing number of small local players competing against established conventional providers.The market needs restructuring as it matures in order for Takaful operators to benefit from economies of scale and large distribution networks.

It is still debated whether Takaful in the GCC is ripe for consolidation and many analysts predict that a trend for M&A will impose itself soon, for the industry to move forward.

Other challenges remain that are affecting the industry globally: such as limited Islamic investment avenues, lack of re-Takaful capacity, lack of standardization and a shortage of qualified personnel, which seems be particularly challenging in the case of the GCC, where governments are placing an increasing emphasis on employing nationals in preference to expatriate staff.


The GCC has undeniably shone as the most dominant Takaful market in the past three years, and it is maturing on sound grounds, despite the challenges. Favorable economic and demographic growth, as well as supportive governments continuously enacting laws and regulations to create a conducive environment for the industry, are further enhancing the GCC as a leading hub for Takaful. The recent political changes across the region will create unlimited opportunities for GCC operators to export their expertise and take over new markets, with a massive potential for cross-border expansion, while the initial focus will be more on MENA, Turkey and possibly India. 
Sohail Jaffer is the partner of international business development in FWU Group.

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