Zaki Hamdan Abu El basher Deputy Managing Director Shiekan Insurance & Reins. Co.

Transcription

1 The Sudanese Experience In Takaful The Model, Practice & Development Zaki Hamdan Abu El basher Deputy Managing Director Shiekan Insurance & Reins. Co. Khartoum - Sudan

2 Introduction Sudan started Islamic Insurance in 1979 when Faisal Islamic bank established the first Islamic Insurance company in the world. In 1992 a new supervision law was introduced under which all companies were required to operate according to Sharia principles.

3 Fundamental differences between Islamic and conventional insurance Gharar The conditions where Gharrar may affect and spoil the contract are:- 1-Where It is incorporated in a financial contract 2-Its contractual effects can be very large and substantial 3-It affects the real contractual interests 4-If there is no genuine need for such a contract

4 Fundamental differences between Islamic and conventional insurance Distribution of surplus / loss. Participation in Management. Premiums paid as donation. Passive role for capital.

5 The Framework Takaful are practiced under a mixed model:- Wakala, for insurance activities Mudaraba, for investment

6 Al Wakala The Company as Manager for policyholders account looks after the technical and administrative activities of the policyholders fund for a fee which is a portion of the contributions (actual management expenses).

7 Al Mudaraba The company invests the shareholders fund according to Mudaraba agreement in which the company is the Mudarib and the shareholders are the owners of the money (arbab almal) Profits are distributed between shareholders and policyholders according to a certain agreement.

8 The Principles Sudan experience is based on the common principles of Islamic cooperative insurance which are distinguished from of those traditional insurance

9 Sharia Compliant transactions Contributions Contributions are paid as donations in whole or in part to the policyholders fund Technical Technical and management expenses are met from the policyholders fund Share capital is to be kept in a separate fund.

10 The Practice We highlight hereunder the main characteristics of cooperative Islamic insurance:- 1- Sharia Supervision:- A- The High Sharia Supervisory Board B- Companies Sharia Supervisory Boards

11 Technical Aspects Underwriting and claims settlement Reserves Reinsurance Accounts

12 Investment Model The shareholders can establish an Investment Department entrusted for investing their capital and part of the premiums written during the year, and the yield can be divided between Policyholders Account and Shareholders Account as per the percentages agreed. HSSB and companies SSB check investment contracts for conformity with sharia principles

13 Policyholders Rights Policyholders have the right to monitor the performance of the company in two ways:- Policyholders General Assembly Policyholders Membership in the BOD

14 The Insurance Supervisory Authority (ISA) ISA implements the Insurance Supervision Act 2001 and the Insurance Supervision Regulations Both Act and Regulation need to be redrafted to incorporate the standards of corporate governance, risk management, solvency and all issues relevant to prudent insurance supervision

15 The impact of applying Islamic Insurance in Sudan Sudanese society accepted Takaful Products as a new method to solve its social and economical problems This is apparent through the rapid growth in premiums as shown in the table below:-

16 Premium Income During the Period Year Premium In M USD

17 Premium Income During the Period Premium In M USD

18 The Experience of Shiekan Ins. In Takaful Established % Market Share 2006 $130m Prem. Income employees 28 branches all over Sudan

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20 The Experience of Shiekan Ins. In Takaful During the period the Sudanese market has accepted the takaful products as an effective strategic tool for economic and social development and for personal financial planning as in the following programs 1- Agricultural Ins.:- A- Crop Ins. B- Livestock Ins. 2- Medical Ins.

21 The Experience of Shiekan Ins. In Takaful 3- Takaful Products ( Islamic substitute for Life insurance):- A- Group Takaful. B- individual Takaful Products 4- Investments

22 1- Agricultural Insurance in Sudan Insurance is of crucial importance to all human activities, most of all to agricultural insurance for the following reasons: Offer security to farmers by indemnifying losses resulting from insured perils over which they have no control, such as floods, shortage of rain, fires, pests and diseases, etc. Constitutes an acceptable guarantee to the banks to offer all required financing and facilities.

23 Agricultural Insurance in Sudan Encourage the farmer to increase his investments and acquire new technology. Creates good conditions for settlement in the Country-side, thereby reducing emigration to urban centers. Enhances national savings and encourages mutual cooperation. Serves as a spearhead for development in the rural areas. Mitigates the burden on the national budget with respect to natural hazards

24 Agricultural Insurance in Sudan Government Support Agricultural insurance has received great support from the State at all levels of responsibility. President Omer El-Bashir in his speech before the N. Council has specified agricultural insurance as a core policy for agricultural development. The vice President Syd A.O.M. Taha has stressed the importance of extending the cover to all small farmers, especially in the states of Blue Nile, Upper Nile, South Kordofan and Northern State. The state commitment is reflected in the 50% subsidy of premium through all the past 5 years.

25 Agricultural Insurance in Sudan The Role of Agriculture in the National Economy Agriculture in its absolute comprehensiveness including crop production, range & pastures, forests, animal resources, wildlife, fisheries... etc comprises the main productive sector in the national economy. It maintains food security, provides foreign earnings, supplies industry with raw materials and supports the majority of the population. On average, the agricultural sector contributes about 48% of GDP

26 Agricultural Insurance in Sudan Crop Insurance The first pilot project on crop insurance was initiated in the irrigated sector in season 2002/2003. A cotton insurance policy was designed for the Gezira Scheme, followed by other policies to cover more crops. Insuring crops in irrigated sector. Insuring crops in Rain-fed sector. Insuring Horticultural crops. Insuring Forest trees

27 The Risks (Scope of cover): Pests Diseases Drawing or Washing out of seedlings due to excessive rains Water Shortage Windstorm and cold weather Sharp variation in temperature

28 Market Penetration Season Area Crop No of Insured Farmers Sectors 2002/ ,069 Cotton 6,300 Irrigated 2003/ ,067 Cotton/Sorghum 15,110 Irrigated/ Rainfed 2004/ ,631 Cotton/Sorghum /Sesame/Maize 29,000 Irrigated/ Rainfed 2005/ ,445 Cotton/ Sorghum /Sunflower 37,949 Irrigated/ Rainfed 2006/ ,509 Cotton/Sorghum /maize/sunflower Millet/Banana/Wheat 130,000 Irrigated/ Rainfed/Hort. 2007/ ,644 Cotton/ Sorghum /Sunflower Millet/Wheat More then farmers Irrigated/ Rained

29 Agricultural Insurance Market Penetratio Number of Insured 140, , , ,000 80,000 60,000 40,000 20, ,300 15,110 29,000 37, / / / / / /2008 Cotton Cotton/Sorghum Cotton/Sorghum /Sesame/Maize Cotton/ Sorghum /Sunflower Cotton/Sorghum /maize/sunflower Millet/Banana/Wheat Cotton/ Sorghum /Sunflower Millet/Wheat

30 Agricultural Insurance Market Penetratio ( Area ) 900, , , , , , , , , , , ,069 65, , , / / / / / /2008 Cotton Cotton/Sorghum Cotton/Sorghum /Sesame/Maize Cotton/ Sorghum /Sunflower Cotton/Sorghum /maize/sunflow er Millet/Banana/Wheat Cotton/ Sorghum /Sunflower Millet/Wheat

31 Agr.. Ins. Underwriting and Claims (in M. USD) Season Premium Claims 2002/ / / / / /

32 Agri. Ins.Premium & Claims Paid (in Millions USD) Premium Claims / / / / / /2008

33 Livestock Insurance Sudan has about 137 million heads in 2005 (include cows, sheep, goats and camels). The stocks are covered against death, theft and abortion. The indemnity covers, the actual value of the animal at the time of death up to, but not exceeding, the value specified in the policy

34 Livestock Insurance Livestock Insurance (in M. USD) (in M. USD) Claims Claims Premium Premium Year Year

35 Livestock Ins. Premium & Claims Paid (in Millions USD) Premium Claims

36 2- Medical & Travel Insurance The company started issuing medical ins. policies since July Cover provided 1- Initial cover (out hospital cover) 2- Optional Cover which is includes:- Maternity Dental Optical

37 Medical & Travel Ins. Underwriting and Claims Year est. Premium in M. USD No of Insured

38 Medicall Insurance est. Premium in M. USD

39 Medical Insurance est. No of Insured

40 3- Takaful Ins. (Islamic Substitute for Life Ins.) The company started issuing Takaful covers since July Shiekan has gained a massive market share in group life(92%) across the country, this success has been achieved by following an innovation approach in addressing social and geographical obstacles that face ins. In Sudan. These innovation techniques could be summarized as follows:- 1- Distribution channels 2- Marketing 3- Product Design

41 3- Takaful Ins. (Islamic Substitute for Life Ins.) Covers Provided 1- Natural death 2- Accidental death 3- Total & Permanent disability 4- Partial & total disability due to accident or sickness 5- Total temporary disability due to accident Dread disease coverage

42 Year 2003 Takaful Ins. Participants covered, Premiums & Claims Paid ( ) No of Participants Covered 454,408 Premium M. USD 9.7 Claims Paid M. USD , , , ,

43 Takaful Ins. No. of Participants covered ( ) 600, , , , , , , , No of Covere d

44 Takaful Ins.Premium & Claims Paid ( ) Premium M. USD Claims Paid M. USD

45 4 - Investment As we mentioned above, the shareholders can establish an Investment Department entrusted for investing their capital and part of the premiums written during the year. The table below shows the funds invested and profits earned for both policyholders and shareholders.

46 Investment funds, Total return & Distribution (in Millions USD) Year 2004 Invest. funds 36.1 Total Investment Return 5.0 P. H. Share 75% 4.3 S. H. Share 25%

47 Investment funds, Total return & Distribution (in Millions USD) Invest. funds Total Investment Return P. H. Share 75% S. H. Share 25%

48 Surplus Distribution The company annually distributes the surplus achieved to the policyholders according to the principles of takaful regulations applied in Sudan, the table below shows the surplus distributed for the years

49 Surplus Distribution Year Surplus Distributed (in Millions USD)

50 Surplus Distributed for the years (in Millions USD) Surplus Distributed

51 Thank you