The global Takaful Islamic insurance market has a surging compound annual growth of 15 percent and will total $7.39 billion over the next seven years, according to a consulting firm report.

Boston-based Celent said currently the Takaful market is a niche opportunity with the small number of vendors with Takaful experience reflecting this. But the sustained double-digit increase in premium in this market will see a commensurate increase in the next few years.

Takaful insurance, based on Islamic principles, is described as similar to a mutual insurer, with the purpose of the company not to generate profits but to share risk between members. The consideration for the insurance service is classified as a “donation,” rather than a “premium.”

Celent said some Takaful growth will be outside traditional markets, noting the recent launch of the first Takaful operator, Principle Holdings in the United Kingdom. Celent expects others to follow in the United Kingdom and further interest from multinationals in Asia and the Middle East.

The Celent report, “Policy Administration Systems for Takaful: A Global Solution Spectrum,” said the expected growth rate of 15 percent to 20 percent in coming years is well in excess of other insurance markets.

Takaful companies, particularly in the Middle East, the report said, have shown higher expense ratios than their conventional counterparts. Over time, said Celent, volumes will rise and higher customer persistence is expected to offset expense ratios currently impacted by a lack of economies of scale and lower use of technology.

Several key issues have emerged for insurers seeking to enter the Takaful market and for the solutions providers with whom they partner, according to Celent.

The company said among these are the regulation and standardization of Islamic insurance products and questions around how to calculate the policyholder surplus.

Insurers who can get the answers right, Celent advised, are well positioned not only to achieve early success in this new product area but also to set standards for a field that is likely to see significant global growth in upcoming decades.

As the Takaful market grows, core technology solutions covered in the report will play a critical role in managing expenses, the company said.

Its study found that once the operating model has been chosen, continued harmonization of Takaful rules will place pressure on core solutions to adapt to its changing environment. Effective and efficient mass distribution is also at the forefront of this growing sector, Celent said.

A critical element to a successful Takaful policy administration system is a flexible architecture, the report said.

Celent commented that fortunately for those entering into this market, many of the modern policy administration systems offer this with user-friendly interfaces and tools allowing configuration of products, workflow and reports.

“This flexible system architecture is required to account for the variety of operating models in use. Functional areas such as product design underwriting, policy administration, billing (where it overlaps with surplus distribution), reinsurance (or reTakaful) and regulation are likely not only to vary from a traditional insurance outfit but from one another depending on the Takaful model chosen,” said Celent.

The consulting firm suggested that points to consider when choosing a short list of solutions are: product configuration, agent and customer portals, growth, and vendor experience.

Tools such as business process rules engines, business process management and policy administration systems could all play a key part. Modern tools with inherent flexibility are well placed to support what is ultimately an alternative way of managing the business, according to Celent.

Special Reports /

Takaful Insurance Seen As Leading Growth Sector

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