Compulsory medical insurance in Qatar and elsewhere in the GCC region will sustain takaful (Islamic insurance) growth prospects, Moody’s Investor Service has said in a recent report.
Growth prospects for takaful “remain healthy” in the Gulf Co-operation Council (GCC) countries, Africa and southeast Asia. This, Moody’s noted “reflects those regions' large Muslim populations and relatively low insurance penetration.
“We expect takaful premiums to keep growing moderately in the next 2-3 years, helped by rising demand for medical insurance as more GCC, African and southeast Asian countries introduce compulsory health cover.
“The recent adoption of risk-based capital regulation in key takaful markets, and takaful insurers' continued embrace of digitalisation, are further positive factors.”
According to Moody’s, low penetration supports takaful growth prospects. Takaful premiums/contributions grew at a healthy compound annual rate of 6.8% between 2017 and 2020, albeit down from 9.4% (between 2011 and 2017).
Overall, growth in takaful contributions has outpaced growth in total insurance premiums in the main takaful markets. Insurance penetration (gross written premiums as a percentage of GDP) in the takaful markets remains low, an indicator of good growth potential.
Takaful premiums/contributions grew at a healthy compound annual rate of 6.8% between 2017 and 2020, albeit down from 9.4% between 2011 and 2017.
The main takaful markets are Malaysia, Indonesia, GCC countries, Turkey, Iran Morocco, Kenya, Nigeria, Egypt, Algeria and Tunisia.
In these markets, cumulative takaful premium growth has outpaced growth in overall insurance premiums, which expanded by 4.1% on average over the 2017 to 2020 period.
On average, takaful accounted for a relatively low 29% of total insurance premiums in its key markets at year-end 2020, up slightly from 27% in 2016.
Penetration of takaful and conventional products combined remains in the low to mid-single digits in the main takaful markets, well below the North American insurance penetration rate of 11.2%.
“This suggests that there remains strong growth potential in these countries,” Moody’s noted.
We expect takaful premiums to keep growing at or close to the levels seen in 2017-2020, supported by the spread of compulsory health and motor insurance across key takaful markets.
Takaful operators' focus on retail lines puts them in a good position to benefit from the introduction of mandatory health and motor cover.
In the GCC region, Qatar, Oman, Saudi Arabia and Kuwait have all introduced compulsory health cover over the past 3-4 years.
The spread of mandatory health cover reflects government efforts to reduce public healthcare spending.
Total healthcare expenditure has grown considerably in all key takaful markets over the past two decades, partly reflecting higher demand for health insurance.
“We expect demand for private health insurance to grow further in response to the coronavirus pandemic. This will help offset reduced sales of group health cover as companies seek to cut costs amid slower economic growth,” Moody’s noted.
Governments in key takaful markets are also encouraging consumers to build up their savings and make greater use of protection insurance. This will underpin growth in family takaful products, prompting insurers to acquire relevant licenses and expand their life insurance capabilities.
Uptake of family takaful products is already strong in southeast Asia, and will increase more gradually in Africa and the GCC region, Moody’s noted.
Regulatory climate and digitalisation are supportive: Moody’s expect takaful operators' capitalisation to remain strong as more governments introduce risk-based capital regulation. Although these regulations are often not full economic capital regimes such as Solvency II, they nonetheless encourage better risk management.
This improves insurers' capital adequacy, underwriting, reserving and investments, it said.
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