Takaful companies have gained momentum significantly in the last 15 years. Except for Saudi Arabia (where all insurers operate under the unified co-operative insurance model, which is distinctly different from the traditional Takaful model), A.M. Best believes that most of the remaining Takaful operators in MENA have struggled to establish competitive positions in their respective markets.
A recent report by the ratings agency highlighted that despite some market consolidation, the business profiles of most Takaful companies remain limited. A.M. Best considers the Middle East insurance markets to be concentrated with a few large players dominate their respective markets, and others competing for the remaining premium.
For example, the UAE insurance market has over 60 insurers with the five biggest companies accounting for more than one third of gross premium written. Most Takaful operators generally fall into the latter group, where emphasis is placed on growth over profitability. This often leads to intense levels of competition, with Takaful companies competing directly with conventional insurers. Given their relatively new status and position in these markets, Takaful operators often lack sufficient size to achieve economies of scale.
Their weaker cost efficiencies and start-up nature translates into high cost bases and higher expense ratios which dampen operating performance. It has been noted that the Shari’ah-compliant nature of Takaful companies is not a specific draw for Muslim consumers. This extends further into the Shari’ah-compliant insurance eco-system, with Shari’ah boards of Takaful companies being reluctant to obligate their companies to seek Retakaful capacity for their reinsurance programmes.
This has been one of the drivers for Retakaful operators failing to establish strong business profile. Takaful companies generally compete on pricing and servicing, and not through offering a separate unique value proposition (UVP). One of the biggest areas of contention is the return of surpluses to policyholders.
Apart from a few companies, Takaful operators have generally not made any distributions to policyholders, mostly because they have been unable to build up sufficient surpluses. Nevertheless, this has impaired what should have been one of the Takaful market’s key UVPs Additionally, for many years, MENA Takaful companies have hoped the family/life Takaful market will gain traction and have developed products designed to meet this expected demand.—Agencies