Syarikat Takaful Malaysia hopes that the new rating will support the company's overseas expansion. "We are moving internationally and by being rated, this will enable us to open our exposure globally," Takaful Malaysia Chairman Hadenan A Jalil said at the signing ceremony with IIRA for the rating services in Kuala Lumpur on Nov 24. The company is currently present in Indonesia, Sri Lanka and Saudi Arabia, as well as offshore operations in Labuan.
It is also a competitive advantage for the firm in a Malaysian takaful market that has become more crowded in 2006. Bank Negara issued new licenses for takaful firms in 2006. Speaking with OBG, Takaful Malaysia director and CEO Md Azmi Abu Bakar said that in 2005 there were only four takaful issuers but there are now nine.
Though the double-digit growth figures the takaful industry has enjoyed are expected to persist, they will not be in line with the number of new firms. "The number of operators has more than doubled but the growth figures will not," Md Azmi said.
The Islamic insurance market grew 18.8% to RM1.3bn ($365m) in 2005, on the back of with the strong expansion of Malaysia's domestic economy. Industry insiders expect the sector to grow 20% this year, boosted by the new takaful operators as well as the increasing awareness among the population of takaful options and products.
According to the local press, the Malaysian Takaful Association hopes to maintain the 20% growth target in 2007 as well.
Part of the reason for this massive growth is the potential that remains for the market. While awareness of takaful is growing, much of the market remains untapped. The market penetration of conventional insurance in Malaysia remains quite low. Although exact figures differ, Malaysia is in the 30-40% range for penetration of conventional insurance, with a 10-15% market penetration rate among the majority Malays, a predominantly Muslim population and therefore the likely consumers for of takaful products. Currently takaful penetration is around 5-6%.
This low market penetration leads many takaful and conventional insurers sanguine about the prospects that they can all grow together for the moment. "We do not consider conventional insurance a competitor, but instead want to create a new market." Md Azmi said.
Competition even among the existing takaful firms is not a significant issue. Syed Moheeb Syed Kamarulzaman, Managing Director of Takaful Ikhlas told OBG, "The market is large enough for all the nine players over the next many years. And for those venturing overseas trying to tap new markets, there are even deeper waters there."
But despite these assurances, the need for international ratings demonstrates that takaful players are still looking for an extra edge.
It also shows that takaful firms are able to leverage on Shariah compliance - and not just service and products - to win the favour of consumers.
Md Azmi said that having Takaful Malaysia's products rated would show that the company practised good corporate governance and transparency.
Though takaful may enjoy a competitive advantage to the Muslim faithful, as well as the backing of Bank Negara, the central bank, - who seeks to make Malaysia an Islamic financial services hub - the industry does face challenges. According to insiders, the main problem that takaful faces, is its guarantee of returns. Like all insurers, takaful policies offer a guarantee of coverage, but they cannot guarantee a return on investment-linked products. Conventional products are able to leverage on interest rates to provide some level of guaranteed returns to consumers.