Will takaful take off?

The suggestion by the Archbishop of Canterbury, Rowan Williams, that officially sanctioning Sharia law might improve relations within the Muslim community caused a swell of emotion across the country.

Politicians weighed into the controversy saying that British law should be based on British values and that to adopt Sharia law would create complete social chaos.

Williams has since tried to clarify his remarks, claiming he never suggested Sharia law should be incorporated into British law, but said perhaps Muslims could choose to have marital disputes or financial matters settled within a Sharia court.

That doesn’t seem so far off as some UK residents already have the option of purchasing Sharia-compliant financial products such as mortgages and, more recently, insurance.

The government’s firm stance on keeping Sharia law officially out of the British legal system, doesn’t seem to cross over into its views on the finance industry.

In January 2007, then economic secretary Ed Balls announced the need to promote these products and said the UK should establish itself as the financial partner of choice for emerging markets and a leading global centre for Islamic finance.

Since that time, interest has been brewing among brokers to learn more about selling takaful – the system of Sharia-compliant cover – as more people look for products that better fit their religious and ethical beliefs.

Peter Staddon, technical claims manager at Biba, says: “I’ve been encouraged over the last couple of months by the number of brokers that have stopped me to ask about this.”

He adds that Biba will be organising a forum in the spring to discuss how brokers can get involved with takaful. “It’s time we as brokers stop selling the products we want to see and start selling the products people want to buy.”

Staddon sees huge market potential for takaful and not just within the Muslim community. Many non-Muslims may also be attracted to these products because of their ethical nature.

Certain aspects of insurance contravene the central tenets of Sharia law including uncertainty, gambling and interest.

Takaful is based on the concept of

co-operation and mutual protection. There are no policyholders, only contributors who participate in a fund for mutual benefit. They are essentially the owners of the fund and the takaful company manages the fund on their behalf. Takaful also ensures that companies don’t invest in ventures that involve interest or go against the principles of Islamic law.

With just under two million Muslims living in the UK – about 54,000 are high net worth, with potential liquid assets of more than £3bn, says Datamonitor – there is significant potential for brokers.

But there has not yet been a major push by insurers into this market. In fact, HSBC is the only company currently offering takaful in the UK and only on a limited basis, with just buildings and contents insurance available.

But that could change. Dedicated takaful insurer British Islamic Insurance Holdings (BIIH) is currently awaiting FSA authorisation, anticipated to come through in the spring, and plans to roll out a broad sweep of Sharia-compliant personal lines products over the internet.

Lloyd’s is also investigating takaful opportunities within the UK, although currently it has no plans in place to introduce any products.

Amjid Ali, head of HSBC Amanah – the bank’s Islamic financial solutions division – is not surprised more insurers aren’t offering takaful products. He says the current UK market for takaful is not as lucrative as some may think, based on the demographics. Any insurer looking to sell these products will face some hurdles.

Most of HSBC’s current takaful clients were existing customers, drawn to the cover through cross-selling initiatives. The company has few customers making the move from conventional insurers.

Ali won’t comment on how much takaful business HSBC writes, but says it has grown by about 25% per year over the past two years.

“Generally the interest is quite high, but when customers call in to get a quote and hear it is more expensive, they want us to prove the product is Sharia compliant. I think for any company entering this market that would be the biggest hurdle,” says Ali.

HSBC’s takaful products are currently gold standard with premiums about 10% more than similar conventional products.

Ali says take-up of takaful has been slow particularly within the orthodox Muslim community, because they tend to look for endorsements by their religious leaders, who may be uncertain of the products themselves.

As such, HSBC is looking to better educate on the value of takaful by holding seminars with Muslim scholars and religious leaders in various regions of the UK.

Ali says, with consistent distribution strategies, an element of education and more providers coming on board, he sees real potential for future growth within the market and believes more Muslims and even non-Muslims will begin asking for Sharia-compliant cover.

“I think the momentum will pick up and we’ll start to see consumers going to their imams wanting to know more about takaful.

“If you look at what happened when takaful was introduced in Saudi Arabia and the Middle East, they faced the same challenges we did. Initially it was 90% of people with conventional insurance and only 10% with takaful. Today it’s the exact opposite.” IT