Reaching the masses through Microtakaful

Transcription

1 building value together 5 November 2015 Reaching the masses through Microtakaful Hassan Scott Odierno, FSA Casablanca

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3 The global Muslim working and working poor (population in millions) 1. India Pakistan Bangladesh Indonesia China

4 The African Muslim working and working poor (population in millions) 1. Nigeria Egypt Ethiopia Sudan Tanzania Morocco Niger Kenya Uganda Mali 9.0 4

5 The African Muslim working and working poor (population in millions) 11. Burkina Faso Senegal Somalia Guinea Ghana Chad Tunisia Mozambique Democratic Republic of Congo Cameroon 2.3 5

6 Takaful is insurance following Islamic principles NOT insurance for Muslims 6

7 Takaful eliminates Riba Gharar Maisir Forbidden Activities 7

8 Takaful Success Factors Takaful has been successful where it has focused on the needs of the population first and foremost, such as family takaful to cover Islamic loans as well as compulsory motor and fire coverage. Later, wants such as private medical care and fast access to savings upon the death of the breadwinner are focused on. This is shown in the experience of Malaysia. 8

9 Malaysian Conventional Life Insurance and Family Takaful Market Total New Business Contributions: RM 3.4 billion Total New Business Premiums: RM 8.9 billion Source: ISM General Insurance & Takaful Statistical Yearbook, Financial Year 2014 LIAM Annual Report

10 Malaysian General Insurance and Takaful Market Takaful Market by Line of Business Total Gross Direct Contribution: Total Net Direct Contribution : Source: RM 2.1 ISM billion General Insurance & Takaful RM 1.5 Statistical billion Glossary: MAT Yearbook, Marine, Aviation Financial & Transit; CAR & Eng. Year Contractors 2014 All Risk & Engineering; and WC & EL Workmen s Compensation & Employer s Liabilities. 10

11 Malaysian General Insurance and Takaful Market Current Takaful Market Gap Class of Total Market* (RM Millions) Takaful % Total Market Business Gross Net Gross Net Medical and Health 1, % 0.4% MAT 1, % 1.8% WC & EL % 3.6% Others 1, % 4.6% CAR & Eng % 7.0% Fire 3,202 1, % 13.2% Motor 9,139 8, % 12.7% PA 1,467 1, % 14.0% Total 18,823 13, % 11.1% * Total general insurance and takaful premium Source: ISM General Insurance & Takaful Statistical Yearbook, Financial Year 2014 With the exception of medical and health, Takaful is relatively weak in commercial lines where multinational insurers have global expertise. In medical and health TOs tend to sell this in the family fund a riders attached to unit linked policies. 11

12 Malaysian Success Factors People don t buy Takaful, they are sold Takaful. In Malaysia we have a strong conventional insurance industry so the insurance culture is strong already. However, in the target market for microtakaful, there perhaps is not as much of an insurance culture, so this will need to be instilled, perhaps through the efforts of industry associations, both the need for risk management through insurance and the existence of solutions acceptable for Muslims. 12

13 Malaysian Success Factors Insurance and Takaful is founded on the middle class, as these are the people with money to spend on Takaful and the desire for services such as private medical care. Malaysia has a growing middle class. Microtakaful is not focused on this class, but rather the lower middle class and working poor. Thus the focus will need to be on coverage which is truly needed. 13

14 Malaysian Success Factors Takaful and Islamic Finance go hand in hand, where Islamic Finance is flourishing Takaful will also flourish. Malaysia is a leader in Islamic Finance. Microtakaful will support Islamic Microfinance, so initially microtakaful will flourish in countries such as Indonesia, Bangladesh and Sudan who have the strongest Islamic microfinance. 14

15 Malaysian Success Factors You can have the best company and products in the world, but without distribution you are nothing. Malaysia has a very strong agency force driving Takaful. This will not work for microtakaful due to the costs involved, so microtakaful will need other distribution strategies. 15

16 Takaful Value Proposition Satisfy needs first such as covering Islamic microfinance loans, adding value through the giving back of surplus and being in compliance with shariah principles. Beyond Islamic microfinance key will be understanding the true needs and using a distribution force that can easily explain this need to the potential participants. 16

17 Takaful Value Proposition The highest want is likely protection products such as medical coverage for private hospitals. The lower income population will not have the luxury of satisfying wants, so microtakaful solutions should be satisfying a need. 17

18 Typical Insurance Company % of Premium Benefits 35%-45% Commissions 15%-20% Expenses 10%-25% Profit 5%-20% Others 10%-15% 18

19 Desire for microtakaful in Morocco With the introduction of Takaful regulations it will be interesting to see how the demand for Islamic solutions such as Islamic microfinance and microtakaful grows. 19

20 High Risk Pools If we only manage risks then riskier products can be developed 20

21 High Risk Population in Morocco According to the Morocco International Diabetes Federation August 2015 article the incidence of diabetes is over 10% of the population at age 40, growing to over 20% at age 60. These are ages where the breadwinner is depended on to earn wages for children s education and retirement funds for himself and his dependents. Unfortunately it is very difficult to get insurance if you have diabetes. 21

22 Diabetes pool run by Morocco International Diabetes Federation Participant Contribution Actual Management Expenses of the Federation Wakalah fee for TPA or Takaful operator Diabetes Fund Benefits Surplus Morocco International Diabetes Federation for its members 22

23 Key Success Factors: Simplicity This is a very simple structure: your family depends on you, we will provide benefits to your family if you die, and if you don t die the extra amount in the fund will be given back to the federation to assist its members (your money is not wasted). If the fund runs out of money we will reduce benefits accordingly. 23

24 Key Success Factors: Low cost The diabetes federation is made up of its individual members. They understand the challenges and needs of their members. They do not need to be convinced through commissions to sell this product. 24

25 Key Success Factors: Low regulatory cost Ideally this would not be considered insurance and thus have very low regulatory costs. A TPA can be used to administer the plan in the early years until expertise can be developed. If it is considered insurance then the running of the plan can be brought for tender for a period of say 5 years with a Takaful operator before it is brought for re-tender. 25

26 Microtakaful coverage for the hard core poor Microtakaful coverage can be set up as a social protection model using zakat funds, with the government or multinational organization providing coverage for certain risks 26

27 Conclusion As Islamic microfinance grows microtakaful will also grow. With the introduction of new Takaful regulations in Morocco and elsewhere awareness of the need for Islamic solutions will grow as well. Microtakaful can be used similar to conventional microinsurance or in thinking outside the box for reaching the masses. 27

28 Hassan Scott Odierno, FSA 28