The Australian financial services market offers a comprehensive suite of Islamic financial products comprising of home finance, leasing & hire purchase, superannuation, fund management, equities and property trust. There is a significant vacuum for Islamic insurance products which could profitably be made available to meet the demands from Muslims and non-Muslim Australians alike.
The Muslim market in Australia is sizeable, with as high as (estimated) half a million Muslims. This segment of the population requires various insurance services to protect their properties and belongings. This opportunity represents a high potential to generate profits for companies and create jobs for all Australians. Have a look at the number of cars the Muslim community owns, a share of mere 10% of this market would produce millions of dollars in profits in no time.
In the year ended 30 September 2014, there were 115 insurance companies in Australia licensed to conduct general insurance business, of these 103 were direct insurers and 12 were re-insurers. The net earned premium for the industry in the year was $31.3 billion, up 2.6% from the previous year and the net incurred claims for the industry in the year were $19.3 billion, up 5.8% from the previous year. In the same period, the total assets for the industry were $112.6 billion. The total industry net profit after tax for the same year was $4.7 billion which represented a return on net assets of 16.9%. This makes insurance a highly profitable business in Australia.
Takaful or Islamic insurance mitigates risks associated with properties and families. Conventional insurance is a contract between the insured and the insurer. Takaful differs from the conventional concept of insurance in the sense that a Takaful operator is not an insurer insuring potential risks of Takaful participants (insured). Takaful participants jointly guarantee each other against risks and Takaful operator simply acts as the manager of the Takaful fund. In a nutshell, Takaful participants contribute premiums in a fund (which constitutes the Takaful fund), Takaful operator manages it including investment of funds, settles claims and makes a profit out of this operation.
The Shariah position on Takaful is clear. In 1965, the Congress of Islamic Research in Cairo discussed the legitimacy of insurance in the Muslim World. In 1985, the Islamic Fiqh Academy in Jeddah had approved mutual insurance (Takaful) as an alternative form of insurance because it is based on a system of co-operation and mutual assistance for the good of society. The European Council for Fatwa and Research has confirmed the same ruling. In 1984, Malaysia has enacted its Shariah based legislation- Takaful Act 1984.
Takaful (Islamic insurance) provides two broad categories of cover: general Takaful and family Takaful. Broadly speaking, the former includes vehicle, home & contents, travel, public liability, professional indemnity and the latter includes health, hospital, permanent disability and death. In a death policy, for example, the incidence of death is not insured, what is insured is the potential suffering resulting from a death.
The governance of Takaful business is based on a number of contracts such as Mudarabah (profit/loss sharing), Wakalah (agency), Ju’alah (commission), Waqf (endowment) or a hybrid of these contracts. These contracts manage the relationship between Takaful participants and Takaful operators in terms of underwriting, premiums, settlements of claims and business profits. The contracts of Mudarabah and Wakalah are widely practised in the Takaful industry around the World.
In Islamic insurance, it is possible to get back a part of the premiums paid to Takaful operators (insurance companies). This regularly happens to Takaful participants in Malaysia. It is possible because of the Mudarabah contract of finance where Takaful participants (policy holders) provide the fund through premiums and Takaful operators manage it. After settling claims and business expenses, the remaining profits, if any, are distributed between Takaful participants and Takaful operators on a re-determined ratio. This arrangement entitles Takaful participants a profit from their insurance companies.
There is a large global Takaful including Re-Takaful industry, mainly based on various countries of Southeast Asia and the Gulf. The major markets are located in Malaysia, UAE and Saudi Arabia. Other countries with significant Takaful operations include Indonesia, Pakistan, Bahrain, Kuwait, Egypt, Turkey, Sudan, Bangladesh, Nigeria, Philipines and South Africa. According to Earnest Young, the global Takaful market grew at 14% in 2014. By 2017, the global Takaful industry may reach over US$20 billion in assets.
Australian Muslims have a substantial need for insurance, a considerable part of it would be met through Takaful if available. This would relate to both, the general Takaful and Family Takaful such as vehicle, home & contents, travel, public liability, professional indemnity, health and hospital. It will be useful and commercially viable to have an Islamic insurance company in Australia.