The Sudanese Experience In Takaful The Model, Practice & Development Zaki Hamdan Abu El basher Deputy Managing Director Shiekan Insurance & Reins. Co. Khartoum - Sudan
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.
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
Fundamental differences between Islamic and conventional insurance Distribution of surplus / loss. Participation in Management. Premiums paid as donation. Passive role for capital.
The Framework Takaful are practiced under a mixed model:- Wakala, for insurance activities Mudaraba, for investment
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).
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.
The Principles Sudan experience is based on the common principles of Islamic cooperative insurance which are distinguished from of those traditional insurance
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.
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
Technical Aspects Underwriting and claims settlement Reserves Reinsurance Accounts
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
Policyholders Rights Policyholders have the right to monitor the performance of the company in two ways:- Policyholders General Assembly Policyholders Membership in the BOD
The Insurance Supervisory Authority (ISA) ISA implements the Insurance Supervision Act 2001 and the Insurance Supervision Regulations 2002. 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
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:-
Premium Income During the Period 1999-2007 Year Premium In M USD 1999 2000 2001 2002 2003 2004 2005 2006 2007 38.2 51.1 67.2 82.1 103.4 112.0 171.6 242.4 246.9
Premium Income During the Period 1999-2007 300 200 100 38.2 51.1 67.2 82.1 103.4 112 171.6 242.4 246.9 Premium In M USD 0 1999 2000 2001 2002 2003 2004 2005 2006 2007
The Experience of Shiekan Ins. In Takaful Established 1983 62% Market Share 2006 $130m Prem. Income 2006 1000 employees 28 branches all over Sudan
The Experience of Shiekan Ins. In Takaful During the period 1979-2007 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.
The Experience of Shiekan Ins. In Takaful 3- Takaful Products ( Islamic substitute for Life insurance):- A- Group Takaful. B- individual Takaful Products 4- Investments
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.
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
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.
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
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
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
Market Penetration Season Area Crop No of Insured Farmers Sectors 2002/2003 22,069 Cotton 6,300 Irrigated 2003/2004 65,067 Cotton/Sorghum 15,110 Irrigated/ Rainfed 2004/2005 180,631 Cotton/Sorghum /Sesame/Maize 29,000 Irrigated/ Rainfed 2005/2006 200,445 Cotton/ Sorghum /Sunflower 37,949 Irrigated/ Rainfed 2006/2007 661,509 Cotton/Sorghum /maize/sunflower Millet/Banana/Wheat 130,000 Irrigated/ Rainfed/Hort. 2007/2008 800,644 Cotton/ Sorghum /Sunflower Millet/Wheat More then 130.000 farmers Irrigated/ Rained
Agricultural Insurance Market Penetratio Number of Insured 140,000 130,000 130000 120,000 100,000 80,000 60,000 40,000 20,000 0 6,300 15,110 29,000 37,949 2002/2003 2003/2004 2004/2005 2005/2006 2006/2007 2007/2008 Cotton Cotton/Sorghum Cotton/Sorghum /Sesame/Maize Cotton/ Sorghum /Sunflower Cotton/Sorghum /maize/sunflower Millet/Banana/Wheat Cotton/ Sorghum /Sunflower Millet/Wheat
Agricultural Insurance Market Penetratio ( Area ) 900,000 800,000 700,000 661,509 800,644 600,000 500,000 400,000 300,000 200,000 100,000 0 22,069 65,067 180,631 200,445 2002/2003 2003/2004 2004/2005 2005/2006 2006/2007 2007/2008 Cotton Cotton/Sorghum Cotton/Sorghum /Sesame/Maize Cotton/ Sorghum /Sunflower Cotton/Sorghum /maize/sunflow er Millet/Banana/Wheat Cotton/ Sorghum /Sunflower Millet/Wheat
Agr.. Ins. Underwriting and Claims (in M. USD) Season Premium Claims 2002/2003 2003/2004 2004/2005 2005/2006 2006/2007 2007/2008 0.3 0.9 2.3 2.6 7.2 6.6 0.4 0.2 0.3 1.3 2.6 2.7
Agri. Ins.Premium & Claims Paid (in Millions USD) 8 7.2 6.6 6 4 2 0.3 0.04 0.9 0.2 2.3 0.3 2.6 1.3 2.6 2.7 Premium Claims 0 2002/2003 2003/2004 2004/2005 2005/2006 2006/2007 2007/2008
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
Livestock Insurance Livestock Insurance (in M. USD) (in M. USD) 1.1 1.1 3.9 3.9 2007 2007 1.0 1.0 3.5 3.5 2006 2006 0.1 0.1 3.4 3.4 2005 2005 0.5 0.5 2.0 2.0 2004 2004 0.8 0.8 2.5 2.5 2003 2003 0.9 0.9 1.5 1.5 2002 2002 1.1 1.1 1.0 1.0 2001 2001 0.98 0.98 0.9 0.9 2000 2000 0.6 0.6 0.8 0.8 1999 1999 0.04 0.04 0.4 0.4 1998 1998 0.2 0.2 0.4 0.4 1997 1997 Claims Claims Premium Premium Year Year
Livestock Ins. Premium & Claims Paid (in Millions USD) 4 3.4 3.5 3.9 3 2 1 0 0.4 0.2 0.4 0.04 0.8 0.6 0.9 0.98 1 1.1 1.5 0.9 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2.5 0.8 2 0.5 0.1 1 1.1 Premium Claims
2- Medical & Travel Insurance The company started issuing medical ins. policies since July 2002. Cover provided 1- Initial cover (out hospital cover) 2- Optional Cover which is includes:- Maternity Dental Optical
Medical & Travel Ins. Underwriting and Claims Year 2002 2003 2004 2005 2006 2007 2008 est. Premium in M. USD 0.23 1.8 2.3 6.4 8.0 14.2 20 No of Insured 2245 11879 29410 40802 41850 58781 100000
Medicall Insurance 20 20 15 10 5 0 14.2 6.4 8 0.23 1.8 2.3 2002 2003 2004 2005 2006 20072008est. Premium in M. USD
100000 80000 60000 40000 20000 0 Medical Insurance 100000 58781 40802 41850 29410 2245 11879 2002 2003 2004 2005 2006 2007 2008est. No of Insured
3- Takaful Ins. (Islamic Substitute for Life Ins.) The company started issuing Takaful covers since July 2002. 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
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
Year 2003 Takaful Ins. Participants covered, Premiums & Claims Paid (2003 2007) No of Participants Covered 454,408 Premium M. USD 9.7 Claims Paid M. USD 1.4 2004 467,712 11.1 1.5 2005 477,339 11.7 1.6 2006 523,406 12.0 1.9 2007 483,160 12.4 1.8
Takaful Ins. No. of Participants covered (2003-2007) 600,000 500,000 400,000 454,408 467,712 477,339 523,406 483,160 2003 2004 2005 2006 2007 No of Covere d
Takaful Ins.Premium & Claims Paid (2003-2007) 15 10 5 0 9.7 11.1 11.7 12 12.4 1.4 1.5 1.6 1.9 1.8 2003 2004 2005 2006 2007 Premium M. USD Claims Paid M. USD
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.
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% 0.7 2005 15.0 3.7 2.8 0.9 2006 13.5 0.5 0.3 0.2 2007 30.1 10.1 7.5 3.5
Investment funds, Total return & Distribution (in Millions USD) 40 36.1 30.1 30 20 10 0 15 13.5 10.1 7.53.5 5 4.3 3.7 2.8 0.5 0.30.2 0.7 0.9 2004 2005 2006 2007 Invest. funds Total Investment Return P. H. Share 75% S. H. Share 25%
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 2002-2006. 2006.
Surplus Distribution Year 2002 2003 2004 2005 2006 Surplus Distributed (in Millions USD) 6.5 11.0 14.0 14.3 9.2
Surplus Distributed for the years 2002-2006 (in Millions USD) 15 10 5 6.5 11 14 14.3 9.2 Surplus Distributed 0 2002 2003 2004 2005 2006
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