ByAnamta Shareef

RehanaOsama Qadri

Waqas Latif

Agenda

Islam and Insurance Insurance Industry in Pakistan Islamic Insurance Takaful In Pakistan Products Offered Conventional Insurance vs Takaful Research Findings Recommendations

Islam and Insurance

As a complete religion, the teaching of Islam encompasses the essence of peace, economic well-being and development of the Muslim.

Islamic insurance was first established in the early second century of the Islamic era.

This was the time when Muslim Arabs started to expand their trade to India and other countries in Asia.

Due to long journeys/voyages, they often had to incur huge losses.

Cont…

Based on the Islamic principle of mutual help and cooperation in good and virtuous acts, they got together and mutually agreed to contribute to a fund before they started their long journey.

The fund was used to compensate anyone in the group who suffered losses through any mishap.

The Europeans copied this, which was later known as marine insurance.

Insurance Industry in Pakistan

Pakistan's life insurance sector was nationalized in 1972.

Until 1992, when the government opened it to private sector participation.

The Government standardize and reduce premium rates and encouraged coverage among a wider segment of the population.

Terrorism has boosted the insurance sector in Pakistan.

Insurance Companies in PakistanConventional

East West Insurance Company Limited East West Life Assurance Company Limited New Jubilee Life Insurance Company

Limited Beema-Pakistan Company Century Insurance Company Premier Insurance Limited Eastern Federal Union State Life Insurance corporation of

Pakistan Habib Insurance Company Limited

Cont…

Takaful

Takaful Pakistan

Pak-Kuwait Takaful

Dawood Family Takaful

Pak-Qatar Takaful

Islamic Insurance

Ibn Abidin (1784-1836) was the first scholar in the Muslim world to discuss the meaning and legal character of insurance.

Recently, however, a consensus was emerging for adapting insurance in the name of takaful and solidarity.

Several Islamic takaful and solidarity companies have been established since 1979.

Cont…

A prime purpose of Takaful system and its products is to strike the right chord with Muslim customers who may find conventional products unacceptable and buy them reluctantly.

In 2002 there were an estimated 41 companies offering Islamic Insurance.

The number of takaful companies more than doubled to 87 companies in just four years (by mid 2006)

across 29 countries.

Cont…

There are approximately more than 108 Takaful and 6 Re-Takaful companies operating globally.

Out of these companies 60% are General Insurance Companies.

40% are working as Life and Family Insurance Companies.

Takaful In Pakistan

The takaful market is still in a formative stage.

Market projections estimate growth rates between 15% and 20% over the next 10 years.

Pakistan is among the top 10 most populous nations in the world. This makes it a very

fertile market for Takaful,

Cont…

Pakistan saw its first Takaful operator, in the General side, start in 2006.

Another two operators in General and two in Family have entered the picture. Dawood Family Takaful being the most recent entrant.

Takaful is not just another tool for risk mitigation and financial protection.

It is a system which works as a source of good for those that use it and the community at large.

Products Offered

Fire Takaful

Marine Takaful

Motor Takaful

Engineering Takaful

Misc Takaful

Fire Takaful

Riot and Strike Damage

Explosion

Atmospheric Disturbance

Earthquake and Fire shock

Aircraft Damage

Terrorism (Separate Policy)

Marine Takaful

The Marine Takaful Policy offers a wide range of coverage to all imports, exports.

Inland transits by sea, air and land from the point of dispatch to the point of

delivery.

Motor Takaful

Section 1: Undertakes to reimburse the expenses incurred for:

Repair/replacement of the parts of the vehicle.

Pays the market value of the vehicle in case of a total loss provided that the originating cost of such damage is an accident.

Cont…

Section 2: It covers the legal liability to third party personal injury and property damage arising out of an accident involving the insured vehicle.

Optional extensions

The extensions that are offered are as follows:  Loss of accessories. Increased legal liability towards property damage of

third  party.

Engineering Takaful

Electronic Equipments Policy

Machinery Breakdown Policy

Boiler and Pressure Vessel Policy

Erection All Risks Policy

Misc Takaful

Burglary

Impact Damage

Personal Accident

Conventional Vs Takaful

Cont… Takaful

Its free from interest (Riba),

gambling, (Maysir), and uncertainty (Gharar).

Conventional

Insurance includes elements of interest, gambling, and uncertainty.

All or part of the

contribution paid by the Participant is a donation to the Takaful Fund, which helps other Participants by providing protection against potential risks.

The premium is paid to

conventional insurance companies and is owned by them in exchange for bearing all expected risks.

Companies are subject to

the governing law as well as a Shari’a Supervisory Board.

Companies are only subject

to the governing laws.

Cont…

The guiding principle behind commercial insurance is that it is based largely on commercial factors.

Takaful on the other hand is guided by the principles of Islam, which aims to establish a social order based on universal brotherhood. In Islam

'A Muslim is the brother of another

Muslim; he neither wrongs him, nor leaves him without help, nor humiliates him'

Cont…

Conventional insurance is not transparent.

Insurance companies invest in ventures that may involve interest or some form of activity which goes against the teachings of the Shari'ah.

Conventional insurance is not mutually beneficial, as certain individuals (shareholders, for example) benefit at the expense of others.

Commercial insurance companies exist to serve the interest of shareholders first, not policyholders.

OUR RESEARCH

Abstract

The topic of our research was “Awareness about Takaful”. This research gave us an idea as to how many people are aware about the term takaful and know about its mechanism.

Sample Size

A sample size of 100 people was selected

for the quantative research and a group of 6 people were interviewed for the qualitative evaluation.

Term “Insurance” Awareness

term "insurance awareness"

99%

1%

% of people Awareabout Insurance

% of people not aware

Awareness Of Mechanism

Awareness Of Mechanism

64%

36%

% of people Aware

% of people Unaware

Assets Insured

Insurance Of any Assets

14%

86%

% of people insuredany assets

% of people who didnot

Awareness of term “Takaful”

Awareness Of term "Takaful"

34%

66%

% of people aware ofit

% of people Unaware

Awareness Of MechanismAwareness Of its Mechanism

4%

96%

% of people Aware

% of people Unaware

Why people don’t buy Takaful!

0%

47%

21%

32%

Why havent usedtakaful

Why havent usedtakaful Not aware by themechanism

Why havent usedtakaful Do not trusttakaful

Why havent usedtakaful treat takaful andinsurance as same

Findings

Findings

A mere 34% of the respondents actually knew the term “takaful” as compared to 99% of them who knew about term “insurance”. There is a day light between the two.

Much like Islamic banking the concept of Takaful has not yet been fully understood by the local people. Our small research is evident to this fact.

Cont…

According to our research almost all of the respondents are aware of the term insurance and can recall almost all of the insurance providers in Pakistan.

Only 14% of the people how ever have insured any assets that they have under the conventional insurance system, there are a number of reasons for that.

Cont…

Since few people know about Takaful, its mechanism and policies are again not understood, not being aware of or in extreme cases misinterpreted.

Because of the lack of promotional campaigns and marketing, Islamic system of takaful has yet to establish its prominence amongst the people of Pakistan.

Sample of 100 is very few to judge but even then the general mind set clearly indicated lack of awareness and knowledge about the system itself.

Recommendations

Recommendations

Takaful operators should follow best practices with great commitment.

Awareness amongst general public is required because of the following reasons.

1. Low literacy rate.2. Misconception about traditional

Insurance.3. Low insurance penetration.

Cont…

Organizing a national road show by conducting awareness interactive programs in Islamic Banking and Takaful.

Massive Advertising Campaign should be launched country wide to improve on recall of the term takaful its policies and procedures.

Conducting Seminars in educational Institutions to spread awareness from grass root.

Cont…

People generally tend to opt for insurance coverage only where it is mandatory by law.

Takaful likewise, can build up public confidence and once that is achieved, people will voluntarily opt for the various takaful options in their individual as well as collective interests.

The pioneers “Pak-Qatar Takaful” themselves know the importance of good marketing and

public awareness!

“Apart from providing high quality products in line with Shariah principles which meet the needs of the public, we need to work hard for creating awareness

for Takaful amongst the community”

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