Shariah compliance is not the only USP in takaful

Dubai - Some of the best product innovation ideas come from distribution channels

When it comes to the takaful industry, Shariah compliance is an important aspect, but it should not be the industry's first unique selling proposition (USP), experts on the second day of the 11th annual World Takaful Conference (WTC) debated.
In his presentation, Syed Raza Haider, chief actuary and chief risk officer at Alinma Tokio Marine, spoke on the importance of product innovation, distribution channels, and awareness and education in the takaful sector. He noted that innovation in takaful product offerings should not be a standalone attempt, but should go hand in hand with a company's distribution capability and job operation capabilities. Having a good idea means nothing if it cant be sold to a consumer, he said.
"Distribution plays multiple roles, and one of the key ones is focused market awareness, but more than that, some of the best innovation ideas comes from the distribution channels. So, if your distribution is not aligned to your targets, then you need to refocus on need based selling. This is because distributors are the ones which usually think outside of the box. This is one role that I feel distribution channels are not playing to their fullest," he said.
Apart from distribution, Haider noted that there should also be a focus on education and awareness of takaful products, without which innovation in the sector would be stunted. "There are clearly certain areas where takaful is not properly penetrating, or is not up to the mark. An interesting observation is that a lot of growth can come from non-Muslim consumers, who recognise the value of the product; and I believe that this is one demographic which we should start focusing more on."
The event also saw a ratings roundtable that assessed the necessary steps required for takaful players to build the industry's financial strength. The session specifically addressed the ratings perspective of the risk-shifting effect of the use of Qard loans from shareholders to the policyholders' fund. Following suit, was a look at what the takaful industry would look like in 2020, with a particular look at the whether family takaful can grow large enough to support the increasing supply of longer-dated sukuk expected in the market.
Mahesh Mistry, director of analytics of A.M Best, said: "The lack of differentiation and the associated pricing pressure along with poor distribution networks will be the key challenges for Middle East takaful companies going forward. For the industry to tackle these challenges, the operators will need to adopt suitable strategies and appropriate structures to ensure that the takaful model employed is balanced, and that it serves the needs of the enormous potential for Shariah compliant insurance, to the benefit of all stakeholders."
- rohma@khaleejtimes.com