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Premiums in the Gulf Cooperation Council's Takaful market, a form of mutual profit-sharing insurance acceptable in Islamic, or Sharia, law, reached the equivalent of $167 million in 2005, a 41 percent increase over the $119 million in premiums collected in 2004, according to a new report from ratings agency Standard & Poor's.

Soaring oil revenues, which are fueling a real-estate boom, are helping to drive up the demand. The GCC Takaful market, at its current rate of development, has the potential to grow to $4 billion, the report also said.

Much of the growth is coming from commercial lines and compulsory lines, such as automobile coverage and, in some cases, medical coverage for expatriates.

The Gulf Cooperation Council is made up of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

While the Takaful growth rate is robust, it is still much smaller than growth in the traditional insurance market, which experienced $4.6 billion in premiums in 2005, up about 18 percent from $3.8 billion in premiums in 2004, the report noted.

In addition, the Takaful market faces challenges particular to it. "It has to match the service quality of the traditional insurance market and persuade an uninsured market to use the facilities of the Takaful market," wrote Bjelanovic and Willis.

"The onus still remains on the Takaful operators to emphasize the broad appeal of Islamic insurance," the authors wrote. "In fact, Takaful can be marketed as the 'ethical' alternative to insurance contracts due to its rigorous screening of investments."

Takaful insurers might need that strategy sooner rather than later. Mainstream insurers are setting up Takaful subsidiaries. Should this model meet the requirements of Sharia, pass regulatory muster and gain broader acceptance among the Islamic community, Takaful players could be in for a turbulent future, according to the authors.

June 1, 2007

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