takaful summit - london 2014 partnership for growth
TRANSCRIPT
Shabbir J. Razvi BA, MBA, FRSA, FPCLondon
Phone: 00 44 (0) 20 8675 3991 Fax: 00 44 (0) 20 8673 8412 Mobile: 00 44 (0) 7900 682 412E-mail: [email protected] [email protected] Web:www.ifsa.uk.com
43 Old Devonshire Road, London SW12 9RD
Partnership for Growth:
Broker/Intermediary Role,
In Marketing Takaful Products
By: Syed Shabbir Jafer Razvi , BA, MBA, FRSA, FPC
International Takaful Summit 2012 London
Devising Takaful/Re-Takaful Platforms in the UK and Europe
Masterclass
Venue: Norton Rose LLP, 3 More London Riverside, SE1 2AQTuesday 10th July 2012
• Individual protection – c£2.4 trillion
• Highest Unemployment – 17yrs
• 1.45 billion of personal debt
State of the Nation
• Largest Debts ever known
• Biggest Residual Income
• Highest Inflation rate for 10yrs
• Lowest level of mortgage lending since 2001
• Consolidation
UK Insurance Industry Key Facts.
• The UK insurance industry is the third largest in the world and the largest in Europe. largest in Europe.
• It is a vital part of the UK economy, managing investments amounting to 26% of the UK’s total net worth and contributing £10.4 billion in taxes to the Government.
• Employing around 290,000 people in the UK alone, the insurance industry is also one of this country’s major exporters, with 28% of its net premium income coming from overseas business.
27%
22%
Breakdown of worldwide premium income by country 2010
United States
Japan
United Kingdom
France
13%
7%
6%6%
5%
4%
3%
3%
2%
1%1%
France
Germany
China
Italy
Canada
South Korea
Netherlands
Switzerland
Irland
Other
Source: Swiss Re. Sigma No. 3/2008
Insurance and the economy
• The UK insurance industry:
• Is the largest in Europe and the third largest in the world, accounting for 7% of total worldwide premium income.
• employs around 290,000 people. This is more than a quarter of all financial services jobs, and twice as many as are employed in the combined electricity, gas and water supply sectors.as many as are employed in the combined electricity, gas and water supply sectors.
• Is responsible for investments of £1.7 trillion, equivalent to 26% of the UK’s total net worth.
• controls around 13.4% of investments in the London stock market. This compares to 12.8% held by company pension funds, 3.5% by banks, 1.8% by unit trusts, and 10.0% by other financial institutions.
• Is a major contributor to the UK’s tax take. In the 2010/11 tax year ABI members contributed £10.4 billion in taxes, equivalent to 1.9% of total Government tax receipts. Of this, £2.7 billion was Corporation Tax and £1.6 billion was Insurance Premium Tax.
• Is a major exporter – 28% of its net premium income comes from overseas business. Premium income from overseas is £56 billion, of which £42 billion is long-term business and £14 billion is general business.
General Insurance Business
• In 2010, insurers received worldwide net premiums (written premium less reinsurance premiums paid by the insurer) totalling £46.4 billion and they paid out £30.8 billion in claims.
• Further outgoings – expenses, commissions, adjustment to reserves etc also • Further outgoings – expenses, commissions, adjustment to reserves etc also contributed to the underwriting result – a small loss of £1.2 billion in 2010.
• The worldwide trading result for general insurance business combines the underwriting result with investment income.
• The return on investing the premiums and reserves held by insurers ensures they make a profit – in 2010 this profit was £3.5 billion, or 7.5 % of premium income.
Motor Insurance
In insurers’ UK business, motor insurance is currently the most challenging
product for insurers, with increasing bodily injury claims, legal costs, uninsured driving and fraud in 2010.
• Premiums amounted to £10.7 billion, and claims to £10.3 billion.
• With other costs, the motor insurers’ underwriting loss was £1.8 billion.
Property Insurance
Property insurance is affected by major weather incidents, as well as increasing Property insurance is affected by major weather incidents, as well as increasing levels of escape of water claims in recent years.
• Premiums amounted to £8.4 billion, and claims to £5.2 billion.
• After two years of underwriting profits, 2010 saw a loss of £191 million. Liability insurance has historically been a loss-making line of business because of asbestos – related claims, but four of the last six years have seen small profits.
• Premiums amounted to £3.0 billion, and claims to £1.9 billion.
• The underwriting profit was £86 million, although employers’ liability saw a loss of £110 million, and other liability offset this with a profit of £196 million.
How consumers buy insurance
There are many ways to buy insurance, and this varies considerably according to the product being purchased. In general insurance overall:being purchased. In general insurance overall:
• 56% of business was sold through brokers, although for
• commercial business 80% of business was sold this way.
• 31% of personal business is sold direct – by telephone or through the internet. For private vehicle insurance, the figure is 43%.
• Insurers cannot report how much broker business is written through comparison websites, but it is estimated that 51% of all private car new business was purchased as a result of the use of the Internet in 2010, and this is increasing in 2011. The report also suggests that 10% of household insurance was purchased this way in 2009, and that this could double by 2011.
• Datamonitor Report – UK Personal Insurance Distribution 2011
General Insurance Retail Sales, 2010
• 76% of life and pensions business was sold through Independent. Financial Advisers in 2010, and 13% through advisers selling the products of one or a limited range of insurance and 13% through advisers selling the products of one or a limited range of insurance companies.
• The remaining 11% was sold without advice. The current methods of selling insurance are being reformed by the FSA as part of the Retail Distribution Review (RDR), and significant changes are due to come into force on 31 December 2012.
37%
31%
General Insurance Retail Sales 2010
13%11%
8%
Broker Banks/Building Societies
Utilities/Retailers/Affinity Groups Company Agents
Direct
Source: Association of British Insurers
RDRRDR
Providers of
Protection will
need to be well
placed to
weather these
changes, to be
Gender Gender
Neutral Neutral
PricingPricing
Perfect storm of legislation driving change
LifeLife
TaxTax
ReformReform
changes, to be
able to deliver
the products
and services
your clients
deserve and
need
Solvency IISolvency II
Think out of the Box!
• The combination of ethical investment policy, significant growth potential and price
competitiveness makes for a compelling business proposition to non- Muslims as well, in competitiveness makes for a compelling business proposition to non- Muslims as well, in
the UK, the rest of Europe and the US. This is a strong driver in markets where the majority
of the population is not Muslim.
• There are two million Muslims in the UK and 20 million in Europe, while in the US the
estimates range from 2 million to 6 million.
• But if non-Muslims seeking an ethical investment come in as Takaful customers, the market
then becomes one of almost 60 million in Britain and some 450 million in Europe.
Customer awareness
• Misconception amongst many Muslims is that insurance is contrary to Islamic principles,
particularly with regard to life insurance.
• People have to be made aware that Takaful provides an acceptable religiously validated
solution.
• Similarly, non-Muslims need to be made aware of why Takaful is ethical.
Opening the Takaful market
• Initial forays into the Takaful market in the UK have so far met with failure.
• Despite this, there is still a conviction that a relevant Takaful market exists.• Despite this, there is still a conviction that a relevant Takaful market exists.
• The appeal of Islamic finance and Takaful insurance is growing globally, with particular
success in emerging markets.
Is Takaful finally ready to take off
in the UK?
• As far as the UK market is concerned, while there is some conviction that a relevant Takaful • As far as the UK market is concerned, while there is some conviction that a relevant Takaful
market exists, attempts to tap into it have proved ill-fated.
• Setting up a Takaful service is unlikely to be plain sailing.
Challenges facing Takaful companies in the UK
• Generate sufficient business volumes.
• Achieve economies of scale.• Achieve economies of scale.
• Drive expenses down to an adequate level.
• Target a specific market segment
OR
• Compete with large players, who may be aggressive on price, and
operating on thinner margins."
New Approach to Market
• The target market in the UK is not a sufficiently large to make the
provision of Takaful products economically viable.provision of Takaful products economically viable.
• Takaful is NOT just a niche product for Muslims.
• It should be marketed as an ethical product.
• Promoted to a wider market segment.
• Investments made from donations [premiums] are invested ethically.
Price is a significant issue
• In the UK, the retail market for general insurance is one of
the most price competitive in the world.the most price competitive in the world.
• Profitability is a challenge for even the most established
insurers.
• The majority of target customers for a general Takaful
operator are already price-sensitive buyers of conventional
motor and household products and unwilling to pay a
premium for a Shariah-compliant offering.
Succeeding in UK
• A potential to succeed in UK exists for the Takaful • A potential to succeed in UK exists for the Takaful
providers.
• The focus should be for providing its services to
large corporations and on specialist risks, rather
than on personal lines or SME commercial business.