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TakafulOpportunities & Challengesfor the Pakistani MarketAzeem Pirani

Head of Marketing & Alternate DistributionPak-Qatar Family Takaful

August 11th, 2007 Avari Hotel, Lahore11th August 2007 1

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Takaful A product and an ideologyDifferences between Takaful & InsuranceThe Pakistani Market

OverviewChallengesOpportunities

Our responsibility

Conclusion

Agenda

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Takaful- A product and an Ideology

Takaful comes from the Arabic root-word kafala-guarantee

Takaful is not only a tool to mitigate loss or to makehalal profits. It is an ideology which promotes

Solidarity and joint guarantee

Self reliance and self sustainability for communitywell being

Assistance to those that need itCommunity pooling system

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Differences between

Takaful & Insurance

What is Insurance?

A tool for Risk Mitigation and FinancialProtection

A tool to enable people to save (Life Insurance)Key differences between Takaful and Insurance are:

Risk Sharing Vs. Risk Transfer

Wakeel Vs. Guarantor

Ameen Vs. OwnerDifferent type of Contract

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Issue Conventional

Insurance

Takaful

Basis Risk Transfer Co-operative risk sharing

Laws Secular/Regulations Shariah & Prudentialregulations

Ownership Shareholders Participants

Mgmt status Company Management Operator

Form of Contract Contract of Sale Cooperative, Wakala or

Mudarbah with Tabarru(contributions)

Investments Interest based Shariah compliant

Surplus Shareholders account Participants account

Differences between

Takaful & Insurance (cont.)

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The Pakistani Market

An Overview

Pakistan - Overall

Population: 6

th

amongst global nations. 166 m.Population in 2015: Still 6th . 193 m.

Urbanization: Presently at 33%

Urbanization by 2015: 39%

GDP Per Capita: $753

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An Overview (cont)

Pakistan Insurance Market

Penetration of Insurance

Pakistan: 0.7% of GDPIndia: more than 3% of GDP

Iran: approx. 1% of GDP

Family & General Companies

Few Innovative Products. Very recent change inthis area

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Challenges for Takaful

Resistance to Insurance, and its benefits, due todifferent reasons

Conservative spending habits

Ignorance of its benefitsProducts which do not meet buyers needs

Religious reasons

Tawakkul issue

Tie your camel first, then put your trust in Allah (SWT).

It is better for you to leave your heirs wealthy ratherthan poor and asking others for their needs.

Non-Shariah compliant elements

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Challenges for Takaful (cont.)

Government regulations untested

Human resources for the sector

Shortage of trained human resources in insurance

Negligible knowledge of Takaful present amongstthe public

Few training programs available for Takaful andinsurance

Insurance has generally never been theoccupation of first choice for new graduates

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Challenges for Takaful (cont.)Education and Awareness

Lack of knowledge about Takaful and insuranceamongst the masses

Ignorance of Takaful amongst the ulema

Significant budget required just to ensure thatknowledge permeates to all segments/levels of society

Marketing & Sales issuesPoor impression of insurance sales persons amongstthe public

Generally poor ethical standards amongst insurancesales persons

General lack of faith on insurance companies meetingtheir obligation in a efficient and polite manner

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Challenges for Takaful (cont.)

Operational IssuesLimited avenues for revenue at Takaful co. ascompared to insurance onesTo be competitive Takaful co. will need to use effectiveIT systems heavy investments

New Takaful co. will need to ensure that they doprudent underwriting; thus eating into the possibilityof having a larger number of customers

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Opportunities for Takaful

Economic/Social conditions in Pakistan makeTakaful a NECESSITY

Lack of govt. social safety netNegligible provision of reliable health careby the govt.Quality education is beyond the reach of theaverage citizen and the institutions providedby the govt. lack the required standards

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Opportunities for Takaful (cont.)

Strong growth in the Islamic financial sectorprovides Takaful with a natural market

Islamic Banks and mutual funds will need Takaful topackage with their other products

Islamic Financial institutions presently have noFamily coverage for their staff

Massive untapped market in Pakistan for riskmitigation tools

Given the necessity of these tools insurance has noteven touched the surfaceGiven the plain vanilla menu provided to customersthere is a great opportunity for innovation

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Opportunities for Takaful (cont.)

Ethical and Shariah compliant model for riskmitigation and financial protection

Large number of people who stay away from

insurance due to religious beliefsLarge number of our population can beconsidered as religious and so Takaful will be inline with their beliefsEducated citizens, although not religious wouldprefer to use an ethical model than one which is

built on making profits by trying to avoid havingto pay claims

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Takaful

What should you do about it?

As educated professionals WE have a responsibilityto our fellow citizens to guide them to what is goodfor them. This is especially important when the

people are living at a level where income equalsexpensesConvey the critical nature of financial protection toothersExplain the benefits of getting financial protection

Introduce the new concept which is not only ethicalbut also Shariah compliant

Just start from those around you.

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Conclusion

Takaful is not only here to stay; its going to GROW!Its ethical and Shariah compliant nature allowsTakaful to overcome the inherent problems with

InsuranceThe Pakistani market has challenges but also has alot of opportunitiesThere are a lot of opportunities for Takaful operators

to make healthy profits in PakistanAlthough Insurance coverage is not the norm inPakistan we need to work to make Takafulsomething everybody uses

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Conclusion (cont.)

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Jazak-Allah khair

For further information contact:

(021) 438-0357 to 61

[email protected]

www.pakqatar.com.pk(launching soon!)

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mailto:[email protected]:[email protected]://www.pakqatar.com.pk/http://www.pakqatar.com.pk/mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]

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