Dynamics of the Cooperatives, Mutual Insurance & Takaful

Mutual Insurance and Takaful in a changing world

Istanbul, TurkeyNovember 12 2012

Dynamics of the Cooperatives, Mutual Insurance & Takaful

Mutual Insurance and Takaful in a changing world

Istanbul, TurkeyNovember 12 2012

Overview of presentationOverview of presentation

• Overview of the cooperative and mutual insurance sector

• Why is Takaful different to conventional insurance?

• Where Takaful is Mutual and where it is not• Opportunities for working together

• Overview of the cooperative and mutual insurance sector

• Why is Takaful different to conventional insurance?

• Where Takaful is Mutual and where it is not• Opportunities for working together

Takaful and Mutuality What is the connection?

Takaful and Mutuality What is the connection?

Takaful is not conventional insurance because....

Takaful is not conventional insurance because....

• Maysir (gambling) – underwriting of risks by shareholders in anticipation of a profit is prohibited

• Gharar (uncertainty) – the insured pays premiums in exchange for indemnity against risks that may not occur

• Riba (usury) – the company engages in investments that derive their income from interest and/or prohibited industries

• Maysir (gambling) – underwriting of risks by shareholders in anticipation of a profit is prohibited

• Gharar (uncertainty) – the insured pays premiums in exchange for indemnity against risks that may not occur

• Riba (usury) – the company engages in investments that derive their income from interest and/or prohibited industries

Takaful in principle is MutualTakaful in principle is Mutual

• Solidarity and joint guarantee • Self reliance and self sustaining for community

well being• Assist those that need assistance• Community pooling system• Shari’ah approved investments and products

“Bear ye one another’s burden”

• Solidarity and joint guarantee • Self reliance and self sustaining for community

well being• Assist those that need assistance• Community pooling system• Shari’ah approved investments and products

“Bear ye one another’s burden”

1978 Islamic Cooperative Insurance Fatwa (Sudan)1978 Islamic Cooperative Insurance Fatwa (Sudan)

The Legal Control Committee for the Faisal Islamic Bank, comprising a number of legal and Sharia experts, ruled against insuring the bank's assets

with commercial insurance companies and forced the bank to deal with Islamic cooperative

insurance companies.

The Legal Control Committee for the Faisal Islamic Bank, comprising a number of legal and Sharia experts, ruled against insuring the bank's assets

with commercial insurance companies and forced the bank to deal with Islamic cooperative

insurance companies.

Fiqh Academy Resolution 1985

Fiqh Academy Resolution 1985

• The Commercial Insurance Contract, with a fixed periodical premium, .... is prohibited (Haram) according to the Sharia.

• The alternative contract, which conforms, to the principles of Islamic dealings is the contract of co-operative insurance, which is founded on the basis of charity and co-operation. Similarly is the case of re-insurance based on the principles of co-operative insurance.

• The Commercial Insurance Contract, with a fixed periodical premium, .... is prohibited (Haram) according to the Sharia.

• The alternative contract, which conforms, to the principles of Islamic dealings is the contract of co-operative insurance, which is founded on the basis of charity and co-operation. Similarly is the case of re-insurance based on the principles of co-operative insurance.

European Council for Fatwa and Research

It is well known that in most non-Islamic countries there are co-operative and mutual insurance

companies. There is no harm from the Shari`ah point of view to participate in these services. So, it is unlawful for a Muslim living in a country where

there is such a co-operative insurance company to make an agreement with a commercial insurance

company.

European Council for Fatwa and Research

It is well known that in most non-Islamic countries there are co-operative and mutual insurance

companies. There is no harm from the Shari`ah point of view to participate in these services. So, it is unlawful for a Muslim living in a country where

there is such a co-operative insurance company to make an agreement with a commercial insurance

company.

In Principle Takaful is MutualIn Principle Takaful is Mutual

“Principles of mutuality should permeate every aspect of takaful, and be practised within Takaful corporations.”

Syed Moheeb (Former President and CEO, Takaful Ikhlas)

“Takaful is a cooperative model, it is a mutual model based on solidarity, designed for community welfare, equity, justice and fairness, both cooperatives and Takaful share that.”

Hassan Bashir (CEO, Takaful Insurance of Africa)

“Takaful will never converge into the conventional model. If it is going anywhere other than the theoretical takaful model, it will be (towards) the mutuals"

Sheikh Dr Mohamed A

Elgari

“Principles of mutuality should permeate every aspect of takaful, and be practised within Takaful corporations.”

Syed Moheeb (Former President and CEO, Takaful Ikhlas)

“Takaful is a cooperative model, it is a mutual model based on solidarity, designed for community welfare, equity, justice and fairness, both cooperatives and Takaful share that.”

Hassan Bashir (CEO, Takaful Insurance of Africa)

“Takaful will never converge into the conventional model. If it is going anywhere other than the theoretical takaful model, it will be (towards) the mutuals"

Sheikh Dr Mohamed A

Elgari

In Principle Takaful is MutualIn Principle Takaful is Mutual

“The best form of Takaful would ideally be an existing mutual or cooperative insurer which invested its premiums compliant with Islamic principles.”

Dawood TaylorICMIF Takaful & Mutuality Seminar, Tunisia 2004

“The best form of Takaful would ideally be an existing mutual or cooperative insurer which invested its premiums compliant with Islamic principles.”

Dawood TaylorICMIF Takaful & Mutuality Seminar, Tunisia 2004

Takaful has evolved into a mutual hybrid...

Takaful has evolved into a mutual hybrid...

• Marine Insurance – Early second century (9 A.D.) – mutual fund to cover robberies and mishaps

• 1979 first Takaful operator established• 1984 first Mudharabah model• 1990s Wakala model established• Multinationals enter the market• Large reinsurers commence Retakaful

• Marine Insurance – Early second century (9 A.D.) – mutual fund to cover robberies and mishaps

• 1979 first Takaful operator established• 1984 first Mudharabah model• 1990s Wakala model established• Multinationals enter the market• Large reinsurers commence Retakaful

The difference between Takaful and mutual models

The difference between Takaful and mutual models

• External Shareholders are providers of capital• Sharing of underwriting surplus• Shareholder provides interest free loan in the

event of underwriting losses• Governance is with shareholders

• External Shareholders are providers of capital• Sharing of underwriting surplus• Shareholder provides interest free loan in the

event of underwriting losses• Governance is with shareholders

Current contribution concentrationsCurrent contribution concentrations

Source: Ernst & Young's World Takaful Report 2011

Global Takaful Operators (2008) and Contributions (2009)

Where can the two movements work together?

Where can the two movements work together?

Opportunities for cooperationOpportunities for cooperation

Status of sector• Mutual insurance has been formally established for many

centuries• Key success factors• Experience from period of demutualisation

External environment• Customer trend is now towards more ethical and transparent

financial providers• Value based proposition

Status of sector• Mutual insurance has been formally established for many

centuries• Key success factors• Experience from period of demutualisation

External environment• Customer trend is now towards more ethical and transparent

financial providers• Value based proposition

Opportunities for cooperationOpportunities for cooperation

Operational• Staff loyalty and belief in principles• Mutuals actively work with each other.• Governance• Surplus distribution

Strong representative voice• ICMIF has 90 years of experience representing the movement.• Unified representation

Addressing Market Gaps

Operational• Staff loyalty and belief in principles• Mutuals actively work with each other.• Governance• Surplus distribution

Strong representative voice• ICMIF has 90 years of experience representing the movement.• Unified representation

Addressing Market Gaps

Mutual market share 2010

Source: ICMIF Mutual Market Share 2010

Muslim population in the worldMuslim population in the world

Source: www.muslimpopulation.com

7.6%

32%

0.4%

52.4%

1.5% 1.8%

Percentage of Muslim population

Europe

Asia & Middle East

Latin America and CarribeanAfrica

Oceania

North America

Potential Takaful markets have minimal mutual insurance

Potential Takaful markets have minimal mutual insurance

Source: The World Takaful Report 2012, Ernst & Young

Microtakaful – the needMicrotakaful – the need

• Large sectors of poverty in many Muslim countries • Almost half of world’s lowest developed countries have a

majority Muslim population• Increasing inequality in Middle East and Gulf countries and

between Muslim countries• Low penetration of insurance• Religion plays a fundamental role in the lives of the poor• In line with the teachings of Islam and principles of Takaful

• Large sectors of poverty in many Muslim countries • Almost half of world’s lowest developed countries have a

majority Muslim population• Increasing inequality in Middle East and Gulf countries and

between Muslim countries• Low penetration of insurance• Religion plays a fundamental role in the lives of the poor• In line with the teachings of Islam and principles of Takaful

Takaful Network Seminar 2011 Returning to our Roots: Realizing our Potential

Takaful Network Seminar 2011 Returning to our Roots: Realizing our Potential

COLOMBO DECLARATION23rd November 2011, Lakeside Cinnamon Hotel, Colombo, Sri Lanka

Following the first FOIITC,GTG, ICMIF Takaful Network Seminar hosted by Amana Takaful the three associations have agreed to join

efforts and resources towards the promotion of Takaful (Islamic Insurance) and Mutuality (cooperative and mutual insurance) worldwide. Further, the Joint committee have highlighted the

following objectives:

COLOMBO DECLARATION23rd November 2011, Lakeside Cinnamon Hotel, Colombo, Sri Lanka

Following the first FOIITC,GTG, ICMIF Takaful Network Seminar hosted by Amana Takaful the three associations have agreed to join

efforts and resources towards the promotion of Takaful (Islamic Insurance) and Mutuality (cooperative and mutual insurance) worldwide. Further, the Joint committee have highlighted the

following objectives:

• To improve access to Takaful in emerging countries and underserved markets.

• To facilitate cooperation and collaboration between Takaful/Retakaful operators and associations from across the globe.

• To raise awareness and understanding of Takaful values and principles worldwide.

• To effectively represent the Takaful movement to all stakeholders and supervisory authorities.

• To strengthen and reinforce the mutual values at the heart of Takaful.

• To improve access to Takaful in emerging countries and underserved markets.

• To facilitate cooperation and collaboration between Takaful/Retakaful operators and associations from across the globe.

• To raise awareness and understanding of Takaful values and principles worldwide.

• To effectively represent the Takaful movement to all stakeholders and supervisory authorities.

• To strengthen and reinforce the mutual values at the heart of Takaful.

A Global reach for local strength

A Global reach for local strength

Thank you

www.icmif.orgwww.takaful.coop

www.microinsurance.coop

Thank you

www.icmif.orgwww.takaful.coop

www.microinsurance.coop