Will MBA be catalyst to UK Islamic insurance momentum?

The Chartered Insurance Institute (CII) and University of Greater Manchester have recently announced the launch a Master of Business Administration (MBA) degree in Islamic insurance, developed in collaboration with the Islamic Insurance Association of London (IIAL) and the Centre for Islamic Finance.

Its launch puts Islamic insurance firmly on the UK agenda. However, this form of insurance has been on the UK’s list of interests for almost a decade, with any form of traction remaining frustratingly elusive.

Islamic insurance, also called takaful, is one of the fastest growing sectors in the global (re)insurance industry – albeit with growth coming from an extremely low base – and it is predicted that Islamic insurance will be worth an estimated £75.2bn by 2030.

Muslims that follow Islamic law, also known as sharia, prohibit themselves from accessing traditional insurance because it is deemed haram – forbidden under sharia. 

In Islam, conventional insurance creates three core issue. The first is uncertainty, or gharar, which prohibits excessive uncertainty in commercial transactions. Guaranteed interest, or riba, on money invested is also haram, with most insurers investing premiums paid in ways based on this principle.

Traditional forms of insurance, where a premium is paid based on a chance of an event happening, is also often seen as gambling, known as maisir, which is forbidden in Islam. 

Takaful, on the other hand, takes the form of a shared pool that contributors pay into, with no profit making allowed on the risk. 

Need for change

The City of London and the wider UK are often seen as one of, if not the, world’s premier finance hubs – but progress on trying to understand the takaful insurance market has been slow.

It is hoped, however, that the launch of this new MBA may accelerate progress.

David Matcham, chief executive officer at the International Underwriting Association of London (IUA) and chair of the Islamic Insurance Association of London (IIAL), said: “The involvement of the Centre for Islamic Finance at the University of Greater Manchester and the Chartered Insurance Institute ensures this course will set the standard for a qualification which we believe will be recognised and valued by employers across the profession.

“We very much hope this will be viewed as an attractive opportunity for students across the world to utilise the MBA in their efforts to pursue a career within Islamic insurance.

It forms a significant part of the Islamic Insurance Association of London’s efforts to promote the establishment of sharia-compliant capacity within the London market.”

CII chief executive Matthew Hill added: “We are delighted to provide this opportunity for professional development, reflecting the societal benefit that Islamic insurance services can bring as part of the global insurance market.”

Global leader

The UK has long sought to establish itself as the leading global provider of Islamic financial services outside of Muslim nations, with the UK stock exchange now having a sharia stock index and serving as home to an increasing number of Islamic investment bonds, known as sukuks.

The UK legal system is deemed to be amongst the best in the world and there are over 20 banks in London alone which offer sharia compliant accounts and funds.

However, the biggest missing piece of the jigsaw has been the insurance sector – a gap that the UK government has been keen to see filled.

The IIAL has spent eight years looking at ways in which London can provide a meaningful level of sharia complaint capacity and has worked with leading scholars to create a set of guiding principles which ensure London’s capacity offering would be fully sharia compliant.

James Bagshawe, partner at Islamic Advisory London Market (IALM) and a founder of the IIAL, told Insurance Times: “There has been huge progress made in creating the environment for London to offer sharia compliant (re)insurance.

“The guiding principles were created to give both Lloyd’s and company market’s underwriters the certainty that they can offer Shari’ah compliant capacity.

“There are numerous ways in which Islamic insurance can be provided. We have worked with some of world’s leading scholars to ensure that given the way in which business is transacted in London the right system was adopted.

”The scholars agree that the ‘windows’ option is the most suitable and it allows (re)insurers to underwriter risks to their fully regulated limits in a Shari’ah way opening the market to significant business opportunities from Muslim nations and Islamic companies across the world.”

Tackling challenges

Despite progress on creating a sharia compliant set of rules for capacity, there are hurdles to overcome in the UK’s journey to becoming one of the globe’s leading Islamic insurance centres. 

“One third of the world’s population is Muslim, so we cannot say Islamic insurance should be viewed as a niche market.”

Bagshawe explained: “The biggest issue has been spreading the message to Islamic businesses that, if they want their risks underwritten in London via a sharia compliant policy, it can be done.

“IALM was formed to create the ability for (re)insures to set up the necessary window to write the business and access the scholars, who can attest that the policies are sharia. We are also working to see if we can support brokers in accessing business that wants to come to London

“However, at present, it remains very much a chicken and egg situation. There is interest from London’s (re)insurers, but they want to see the risks. Brokers want to see the capacity before they will look to engage their Islamic clients on the potential to have all or part of their risk underwritten via a sharia compliant policy. The potential is huge, the structure is now in place and, as a market London, needs to look to grasp the nettle.”

There are more benefits to the UK becoming a centre for takaful, however.

Bagshawe added: ”We often hear that the industry is locked in a war for talent.

“However, by not offering sharia capacity means that we are also missing out on the ability to attract highly skilled and talented Muslims into the industry, as the very premise of conventional insurance goes against Islamic beliefs.

”There is also the question of how this can be viewed when it comes to insurance’s effort to drive greater diversity and inclusion. One third of the world’s population is Muslim, so we cannot say Islamic insurance should be viewed as a niche market.”