| insurancenewsnet.com By Iris Lai - | |||||||
| A.M. Best Company, Inc. |
Allianz SE is looking to further expand its takaful, or Islam-compliant insurance, in the Asia-Pacific region, using its experience in Indonesia where it sees substantial market demand for comprehensive and affordable plans.
"Takaful is a business in which we are keen to grow and expand," said Kamesh Goyal, regional chief executive of Allianz Insurance Management in the Asia-Pacific. Allianz offers takaful products in Indonesia through its life and nonlife insurance companies. (source)
"We are also looking at Malaysia very closely and would be ready to include takaful in our portfolio when the opportunity arises," said Goyal.
Last July, Allianz Malaysia Bhd. ended negotiations with MNRB Holdings Bhd. to acquire an equity interest in Takaful Ikhlas Sdn. Bhd. in Malaysia. The German insurer said it remains open to a new partner to jointly develop takaful business in Malaysia (Best's News Service, July 7, 2011). Allianz said the terminated acquisition talks would not delay its original takaful development plan in Malaysia, for which finding the right partner is a critical factor (Best's News Service, July 19, 2011).
A takaful company must establish a principles-based model in Indonesia, said Goyal, who added, "we are actively engaged with the National Shariah Board" and have to work closely with scholars on Shariah-compliant product development. "Our relations with Shariah officials are very important," he added.
Indonesia's regulator strengthened its takaful framework with a measure introduced in 2010 requiring companies to establish a Shariah control board and to strictly separate shareholder and policyholder funds, according to Swiss Re in a recent sigma report, "Islamic Insurance Revisited."
Indonesia's regulation is expected to evolve further. The minimal capital level for a takaful company will likely increase and there is a plan to forbid the use of the "Islamic window," or the sale of takaful products by traditional insurers, in order to encourage establishment of pure takaful companies, said Swiss Re in its report.
Conventional insurers are currently allowed to sell takaful products in Indonesia, but companies can only offer either family or general takaful policies. Capital requirements for takaful companies are lower than for conventional insurers.
Allianz Life Indonesia offers unit-linked and individual health takaful products in the country, according to Goyal. For general takaful, Allianz Utama Indonesia provides car and house protection for individuals and property and business interruption coverage for small- and medium-size enterprises.
Takaful contracts are based on the wakala model, which is a principal-agent arrangement, with premiums divided into an administrator fund as a fee for insurers and a policyholder fund to settle claims.
Diversity of takaful plans from savings to protection solutions, offered with affordable prices, is a key strategic factor for success, said Goyal. Allianz started takaful business in Indonesia in April 2006.
In distribution, Goyal said the companies focus on agencies as the main selling network, particularly in reaching the untapped market in rural areas. "Bancassurance is, of course, also very important," he added.
Comparing with conventional insurance, Goyal said "the only takaful specificity is in the early stage of the underwriting process." The operators have to look into the sum amount at risk of each insured name and this risk is calculated separately from conventional insurance.
Overall, Goyal said comprehensive and affordable protection plans including medical, savings for education and retirement funds are essential takaful offers to meet market needs. Proper and regular training for the sales forces is crucial to educate the difference between products and their Shariah compliance.
For takaful investment, Goyal said the companies have to seek approval from Shariah officials and have to be Shariah-compliant. The investment aims for the mutual funds, sukuk funds and real estate investment trusts' offshore equity.
Indonesia's takaful contributions increased at an average of 33% annually between 2007 and 2010, higher than Malaysia's growth of about 20% and global average of 28%, according to Swiss Re. Indonesia reported US$405 million in direct takaful contributions in 2010, representing about 13% of global market share.
Allianz SE currently has a Best's Financial Strength Rating of A+ (Superior).
(By Iris Lai, Hong Kong bureau manager: Iris.Lai@ambest.com)
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