Insurers jostling for family takaful licences

by Habhajan Singh
Keen competition is expected between a number of local insurers to land the two family takaful operator licences up for grabs, with some insurers already hiring key people to boost their chances.
Industry sources say as many as eight insurance companies are already at various stages of their preparation to lobby for the licences.
The players are showcasing their worth to get a foot into the lucrative market which saw a total income of RM2.83 billion in 2008, more than double the RM1.22 billion just four years earlier.
"Some of them are going about it as if they are sure to land the licence. This has made some people at the central bank a little uncomfortable," said one takaful executive.
Based on conversations with industry players and previous announcements, among the insurers keen on getting the family takaful operators licence include country’s largest life insurers Great Eastern Life Assurance (Malaysia) Bhd, American International Assurance Bhd (AIA Bhd) and Manulife Holdings Bhd.

In a recent interview, Malaysian Takaful Association chairman Datuk Syed Moheeb Syed Kamaruzaman said players keen to get the licence will have to present a strong business plan.
"That would be the uppermost on Bank Negara’s agenda — to make sure that Malaysian takaful is exported and flourish aboard. "We hope that the two companies who will get the licence will pave the way to the other companies," he said.
Right now, according to another takaful executive, except for Takaful Malaysia who has full operations overseas, the others have not been able to put in place a plan that will take them abroad.
As part of the announcement on the liberalisation measures for the financial sector announced in April 2009, it was announced that Bank Negara Malaysia (BNM) would issue two new licences for Islamic banking with a minimum paid-up capital of US$1 billion and up to two new licences for family takaful.
In its statement in April 2009, BNM said the new family takaful operator will be registered under the Takaful Act 1984 and will have a minimum issued and paid-up capital of RM100 million.
In assessing the merits of the applications, the first criteria adopted is that the applicant must be a reputable regulated institution or a shareholder of a reputable regulated institution The second reads as follows: "The applicant must demonstrate, through a comprehensive business plan, that the proposed new licensed institution to be established in Malaysia or the foreign partner intending to acquire equity interest in an existing domestic Islamic bank, needs to have necessary expertise and resources that can tap the global Islamic financial market and contribute to reinforce Malaysia's position as an international Islamic financial hub."
The winners will join other takaful players like Syarikat Takaful Malaysia Bhd, Etiqa Takaful Bhd and Takaful Ikhlas Sdn Bhd.
Takaful Malaysia, which already has a presence in Indonesia, has been invited to provide technical support to a financial institution in the Middle East and is considering the move as a stepping stone into the West Asia region, its group managing director Datuk Mohamed Hassan Kamil said in November 2009. The company has about 34 branches in Indonesia and about 56 branches locally.
Asked if existing takaful players are concerned with more new players, Syed Moheeb said that from the industry perspective, the penetration rate for takaful is only at 7% compared to conventional insurance which is at 30%.
"There is enough business for everyone. The more important thing is that we need to get more people joining takaful. Currently, the rural market is very much left untapped," he said.

(This story appeared in The Malaysian Reserve on 4 Jan 2010. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)