Takaful Malaysia Case
BEST REINSURANCE –
FAR EAST REGIONAL OFFICE
TAKAFUL :
THE MALAYSIA CASE
Development of Takaful
– Worldwide Prospective
Takaful or Islamic Insurance is a new
industry.
Takaful was initially undertaken in Sudan
1979 and Malaysia in 1984.
Takaful operations open up in many
countries in the past two decades especially
in large Muslim community.
Currently more than 50 takaful operators
worldwide including some non-Islamic
countries.
2
Worldwide Muslim Population
(Based on 1998 Islamic Web.Com)
3
Potential of Takaful Business in Muslim Countries
Worldwide Muslim Population (Based on 1998 ISLAMIC Web.Com)
Area Population Muslim Population Percentage
(Million) (Million)
Worldwide 5,070 1,500 30%
South East Asia 363 226 62%
Malaysia 20 10.4 53%
Total Insurance Premium (Based on 2003 Sigma Report)
Area Total Premium Life Insurance Non-Life Insurance
(USD ‘Billion) (USD ‘Billion) (USD ‘Billion)
Worldwide 2,940 1,670 1,270
South East Asia 194 137 57
Malaysia 5.6 3.4 2.2
Area Total Takaful Family Takaful General Takaful
Contribution Contribution Contribution
(USD ‘Million) (USD ‘Million) (USD ‘Million)
Malaysia 267 201 66
(Takaful)
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Potential of Takaful Business in Muslim Countries
Insurance Premiums Per Capita (Based on 2003 Sigma Report)
Area Insurance Life Insurance Non-Life
Premiums Per Premium Per Premium Per
Capita (USD) Capita (USD) Capita (USD)
Worldwide 470 267 203
South East Asia 58 41 17
Malaysia 227 140 87
Area Takaful Family Takaful General
Contribution Per Contribution Per Contribution Per
Capita (USD) Capita (USD) Capita (USD)
Malaysia 11 8 3
(Takaful)
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Development of Takaful – Malaysia Case Study
Takaful industry is relatively new
compared to conventional insurance
companies in Malaysia.
The National Fatwa Committee of the
Malaysian Islamic Affairs Council declared
the conventional life insurance business
contradicted with Islamic principles in
1972.
In 1985, the Fiqh Academy of the OIC
made a declaration that all forms of
conventional insurance do not conform
with Islamic principles.
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Development of Takaful – Malaysia Case Study
Takaful Act 1984 was introduced to
supervise the takaful activities since
Insurance Act could not be applied to the
takaful business in Malaysia.
Takaful Malaysia Sdn. Bhd. was established
in 1984 with paid-up capital of RM10 Million
and there are four takaful operators in
Malaysia.
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Organisation Chart: Islamic Banking & Takaful
Department & Insurance Supervision Department
GOVERNOR
DEPUTY
GOVERNOR
ASSISTANT ASSISTANT
GOVERNOR GOVERNOR
DIRECTOR ISLAMIC DIRECTOR
BANKING & CHIEF INSURANCE
TAKAFUL ACTUARY SUPERVISION
DEPARTMENT DEPARTMENT
SENIOR SENIOR SENIOR MANAGER SENIOR SENIOR SENIOR SENIOR
SHARIAH BANKING
ISLAMIC MANAGER OPERATIONS,
MANAGER MANAGER MANAGER MANAGER
SPECIALIST SUPERVISION SUPERVISION ACTUARIAL
BANKING TAKAFUL LEGAL & SERVICES SUPERVISION
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Takaful Market Performance In Malaysia(2003)
Four Takaful operators are :
- Takaful Malaysia
- Takaful Nasional Malaysia
- Maybank Takaful
- Takaful Ikhlas
Number of Offices : 132
Total Employment : 2,161
No. of Total Net Total Takaful
Agents Contribution Income Fund Assets
(USD’ Million) (USD’ Million)
Total 11,433 267 1,160
Family Takaful 9,893 201 1,010
General Takaful 1,540 66 150
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Performance of Takaful Business in Malaysia
300
Net Contribution in USD Million
250
66
200 58
47
150
39
100 201
176
137
50 98
0
2000 2001 2002 2003
Year
Family General
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Overview of the Takaful Performance
The favourite economic conditions in 2003
was positive for takaful industry in
Malaysia.
The contributions of both family and
general increased by 14% to USD267m and
total assets fund increased by 22% to
USD1.16 billion.
These increased has expanded the market
share for Takaful business to 5.40% in
terms of total insurance industry premium
production and to 5.60% for total insurance
assets fund.
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Overview of the Takaful Performance
In 2003, the market penetration of family
takaful business has improved to 4.50%.
The Takaful industry is in strong position to
move forward to expand further in an
environment of stronger economic growth
projected in 2004 and more conducive
business environment in Malaysia.
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Performance of Family Takaful in Malaysia
160
Contribution in USD Million
140 134
119
120
97
100
78
80
60
40
20
0
2000 2001 2002 2003
Year
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Performance of Family Takaful Business
The new business contributions
shown strong growth in all family
takaful plans.
The increase due to new plans
such as mortgage reduce term
and new education fund takaful
plans.
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Performance of Family Takaful Business
The performance of the annuity
takaful plans also shown positive
growth and it is expected to increase
given the demographic transition
towards an ageing society.
The development of the first
investment-linked takaful plan has
opened a new window of growth for
family takaful business in Malaysia.
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Distribution Channel for Family Takaful
Business
Direct Marketing and Agents: 86.3%
Bancassurance: 13.0%
Brokers: 0.7%
Types of Family Takaful Business in Malaysia for Year 2003
Annuity Investment-
1% Linked
Ordinary 1%
Family Group
10%
Ordinary
Family
Individual
88% 16
Assets of Family Takaful Fund in Malaysia
(2003)
Other Assets, Islamic Private
10.8% Debt Securities
and Equities,
34.6%
Investments,
45.3%
Investment
Accounts and
Islamic Money
Market, 35.6%
Government
Islamic Papers,
10.5%
Other
Financing, 2.4%
Investment Investments, 0.2%
Properties, 5.9%
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Performance of General Takaful in Malaysia
for Year 2003
120
106.05
Contribution in USD 'Million
100
87.55
80 70.21
60 53.34
40
20
0
2000 2001 2002 2003
Year 18
Distributions Channel for Family Takaful
Business
Direct Marketing And Agents: 70.1%
Bancassurance: 10.0%
Brokers: 19.6%
Types of General Takaful Business in Malaysia (2003)
Marine,
Misc Aviation and
20.0% Transit
8.7%
Fire
Motor
41.5%
29.9%
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Assets of General Takaful Funds in Malaysia
(2003)
Islamic Private
Other Assets, Debt Securities
10.8% and Equities,
Investment
34.6%
Accounts and
Islamic Money
Market, 35.6% Investments,
45.3%
Government
Islamic Papers,
10.5%
Other
Financing,
Investments,
2.4% Investment
Properties, 0.2%
5.9%
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Basic Concepts of Takaful
1. Al-Mudharabah – means ‘profit sharing’.
2. Al-Takaful – means ‘joint guarantee’.
3. Tabarru – refers to elements of ‘donation’.
Why Conventional Insurance does not
conform with the requirement of the
Syairah?
1. Al-Gharar – refers to ‘unknown’ or ‘uncertain’ factors in
a conventional insurance contract.
2. Al-Maisir – refers to ‘gambling’ element and is said to
derive from the ‘gharar’ element.
3. Riba – refers to the ‘interest’ factor present in the
investment activities of conventional insurance
companies.
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Takaful Models
1. Non-Profit Model - Social governmental owned
enterprises and programme operating on a non-
profit basis. The contributions paid by the
participants are wholly for tabarru (donation) to
unfortunate members.
2. Al-Mudharabah Model - The co-operative risk
sharing where participants and operators share
in the distribution profit.
3. Al-Wakala Model - In this model, the co-
operative risk sharing occur among the
participants with a takaful operator whereby a
fee is agreed to be paid to the operators for the
services rendered. The operator shall not
participant in the underwriting results.
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Types of Takaful Operation
1. Family Takaful (Chart 1) – The plans available
is quite similar to the endowment policy in
conventional life insurance practice where
participants may choose a fixed period of
coverage. Installment payment can be in
Participants Account (PA) and Participant
Special Account (PSA).
2. General Takaful Operation (Chart 2) – The
protection on short term basis. The participants’
contribution is wholly on tabarru (donation)
basis and sharing of profits is on underwriting
surplus and investment income. Surplus is
derived after deducting company’s expenses
from this fund.
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Chart 1: Operation Flowchart of the Family
Takaful Plan.
PROFITS
ATTRUBUTED TO
SHAREHOLDERS
COMPANY'S
COMPANY ADMINISTRATRTION
& MANAGEMENT
EXPENSES
TAKAFUL
INVESTMENT PROFITS 30% (Example only)
CONTRACT BASED
BY FROM
ON PRINCIPLE OF COMPANY INVESTMENT 70% (Example only)
AL-MUDHARABAH
PARTICIPANTS PARTICIPANT PARTICIPANT PAYMENT TO
PARTICIPANT ACCOUNT ACCOUNT ACCOUNT PARTICIPANT
TAKAFUL
FAMILY
INSTALLMENT
TAKAFUL
PAID BY
FUND
PARTICIPANT
PARTICIPANTS PARTICIPANTS
TAKAFUL PAYMENT TO
SPECIAL SPECIAL
BENEFITS PARTICIPANT
ACCOUNT ACCOUNT
Source: BIRT (1996) 24
Chart 2: General Takaful Operation
Flowchart PROFITS
ATTRUBUTED TO
SHAREHOLDERS
COMPANY'S
ADMINISTRATRTION
COMPANY & MANAGEMENT
EXPENSES
TAKAFUL
INVESTMENT PROFITS
CONTRACT BASED
BY FROM
ON PRINCIPLE OF COMPANY INVESTMENT
AL-MUDHARABAH
OPERATIONAL
COST OF SHARE OF
TAKAFUL SURPLUS FOR
THE COMPANY
PARTICIPANT TAKAFUL GENERAL GENERAL OPERATIONAL
CONTRIBUTION FAMILY FAMILY COST OF SURPLUS 40% (Example only)
PAID BY ACCOUNT ACCOUNT FAMILY (PROFIT)
60% (Example only)
OPERATIONAL SHARE OF
COST OF SURPLYS FOR
THE PARTICIPANT
TAKAFUL
Source: BIRT (1996)
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Challenges and Opportunities in Malaysia
The future prospects of the takaful business
depend on our ability to convert challenges
into opportunities.
The challenges that takaful operator face are
lack of uniform terminology, Sharifah
interpretation, human resources development,
product innovation, retakaful, promotional and
marketing.
A large market remains untapped and takaful
operators need to keep pace with their
conventional counter parts in developing
comprehensive range of takaful products that
are innovative and Shariah compliant.
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Challenges and Opportunities in Malaysia
Takaful operators shall develop and
explores new marketing tools and
channels to promote their products and to
reach the untapped market.
The implementation of Takaful system
should be accepted by other races as well
since Malaysia is a multiracial country.
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