By: Noor Muhamed Habib, Managing Director at Ammanah IFS
Takaful (Islamic insurance) is a form of insurance that is a mutual insurance based on Islamic principles.
This article will not go into detail about the Shariah rulings and what makes conventional insurance unacceptable, but rather focus on the market needs and the South African experience. It is important to understand, from the onset, that over 2 billion Muslims always put their Creator’s laws before their own, or at least they try their best to do so – including that of Shariah law before man-made law when it comes to their finances.
I must explain some Shariah (Islamic Law) aspects to make one understand the factors at play in the Muslim market, which are set in stone via the Quraan, and through the example of the Prophet (PBUH).
Now, one can understand that as a Muslim risk management is important because the Prophet himself advised on this in different ways. A good example of this is when Prophet (PBUH) came upon a Bedouin, who simply left his camel free and was going to pray. Seeing this the Prophet asked the Bedouin to explain his actions, to which the Bedouin replied “I put my trust in GOD”. The Prophet (PBUH) replied “ Tie your camel first and then put your trust in God”. This is a simple but very powerful message to ensure we always take precautions practically while maintaining our faith.
I think once one understands the above, it makes it much easier to explain the South African experience. Takaful began in South Africa in 2003 by Uwaiz Jassat, who is widely considered the pioneer of Islamic insurance in South Africa. Over the past 12 years it has grown steadily per annum, at an overall average of about 40%.
But because Takaful or Islamic insurance is not mentioned directly in the Quraan, some Muslims would view it as something new and therefore something to avoid. While other understands the core function of insurance is to minimize risk, and would therefore happily use the Takaful product to ensure they are reducing their risk and doing it in a way that complies with their faith. In South Africa this is now happening more and therefore stronger growth is forecasted in the coming years.Globally the rise of Takaful has also been increasing steadily and estimated to have reached the $20 billion dollar mark in 2014.
In South Africa the Muslim market is estimated to be worth R1,5 billion annually. Most South African Muslims are educated, very loyal and have exposure to insurance over generations by being active participants directly or indirectly. Within that community, you also have untapped markets, especially the estimated 2 million foreigners who now have made South Africa their home, many of whom are business people. There is currently very little support or collaboration with Islamic organizations or Islamic financial institutes to create awareness and educate the market about Takaful products. With these institutions working together, it will create the push for Takaful to be more widely accepted and solidly grounded in South Africa. Thereafter we can take the product to the rest of Africa. The African continent is about 50% Muslim.
Ammanah IFS, the largest Takaful brokerage in South Africa, was initially looked upon sceptically, especially when one considers the factors mentioned above, and they may have been right to worry except that we were focusing on a niche market that was willing to put their money where their faith was. With their support, our Shariah boards word of mouth and referrals we grew, although slow initially. We then embarked on marketing campaigns within the Muslim community, using Islamic media only, but market awareness of Takaful is estimated to be at around 20% only.
There was uncertainty created in the market by some Muslim scholars about the product, as well as the claims paying ability by some within the industry which led to a slowdown in the number of Takaful policies. After ABSA took over Takaful in 2009, many who were sceptical about the claims paying ability of Takaful felt reassured and good growth was experienced once again. Currently Takaful Africa, underwritten by Zurich is the only insurer that provides us with the Takaful products and their ability to understand and react to the needs of our community must be mentioned and commended. Now that the Takaful product enjoys Zurich’s expertise and support, the interest and confidence, especially by larger commercial clients has grown.
Amazingly, a small percentage of the Takaful client base is not Muslim, as Takaful appeals to the moral principles (such as no alchohol, tabacco, pornography, weapons) of many faiths. The concept of mutual insurance also fits in with the principles of Ubuntu.
Going forward the Muslim market simply wants three things, which if we get right will mean an almost perfect scenario for us and the clients we serve – for example: full Shariah compliance, good value and excellent service. At Ammanah we recognise that there are many opportunities in the Muslim market that still need to be filled, especially from Islamic insurance as well as the life insurance market, and we will continue to contribute and benefit from its growth, GOD Willing.