www.takafulafrica.com
TAKAFUL INSURANCE OF AFRICA
Takaful Insurance of Africa
Takaful Ethical Insurance Insurance of Africa By: Nicholas Paul Griffin
T
akaful Insurance of Africa Ltd (TIA) is a pioneering, dynamic insurance company introducing a new and exciting ethical perspective to the Kenyan insurance market. The company vision is for TIA to be the number one 2
Takaful Insurance of Africa - Kenya
provider of innovative Takaful products and services in Africa, and to provide superior Takaful products and services that offer enduring value to members through quality risk management and exceptional claims settlement.
Finance The Takaful concept of insurance is based on the principles of togetherness, cooperation and mutual solidarity.
Hassan Bashir CEO Takaful Insurance of Africa
Takaful Insurance The term Takaful originates from the Arabic verb ‘kafalah’, meaning ‘to help one another’ or ‘mutual guarantee’. In the context of insurance, Takaful refers to shared responsibility, shared guarantee, collective assurance and mutual undertakings by a group. Takaful bears many similarities to co-operative or mutual insurance, but differs on the model of operation and on the rules governing investments and profit sharing. Takaful, or Islamic insurance, embraces the concepts of
mutual protection and shared responsibility, which was seen in the practice of paying blood money under the Arab tribal custom. The Takaful concept of insurance is based on the principles of togetherness, co-operation and mutual solidarity. Unlike conventional insurance, Takaful is based and operated on the tenets of Shariah and avoids prohibited activities involving riba (interest), maisir (gambling) and gharar (uncertainty). The operational framework can be simply explained as a system where each member contributes a given premium to a general Aspire Africa · July/Aug 2016
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Takaful fund managed by Takaful operators like TIA. Through the concept of tabarru (donation), the members allow TIA to pay any losses suffered by the participants contributing to the pool. Any surplus left from the contribution after payment of claims and other expenses is either used to grow the reserves or distributed amongst the members. In the industry, this is referred to as ‘surplus profit’. Despite how some might interpret its commitment to Shariah, Takaful is not only for Muslims, rather a cooperative concept that is equally beneficial to all members of society without any discrimination on the basis of ethnicity, creed or colour. It welcomes all customers who value ethical, fair, just and equitable business.
TIA Ushirika Model TIA was founded in 2008, gained its formal license in 2011, and is now East Africa’s first fully-fledged operator of Takaful. The company boasts incredibly high standards of financial soundness, with a rationale respecting the need to provide risk management and financial security services founded on ethical principles and values. Unlike any other underwriter working out of East Africa, Takaful Insurance of Africa comes to market with a model aimed at revolutionising the concepts of risk management and financial protection. At the centre of the TIA Ushirika model are fundamental Shariah values designed to promote justice, equity and fairness. This model demands the company promote transparency, integrity, and accountability in all actions undertaken during its operations. 4
Takaful Insurance of Africa - Kenya
This is in direct contrast to the conventional insurance model, which is designed on the premise of the risk transfer model, and meant to ultimately maximise shareholder value. The TIA Ushirika model inherently promotes a riskand-profit sharing welfare-based model that balances the interests of both participants and shareholders. TIA operates in accordance with the principles of Shariah, whilst also adhering to Insurance Regulatory regulations. All operational matters, investment dealings, management and marketing of company products are overseen by the Shariah Supervisory Council. This approach ensures that good governance and obligation to participants are met, with the company committed to assisting its customers in an efficient and effective manner, particularly when it involves claims and compensations. TIA believes that building ‘a bond beyond insurance’ is a reality and not just a slogan, and approaches all dealings with its customers with this goal in mind, embracing core values of excellence, customer focus, integrity, innovation, team work and equity in order to deliver.
Shariah Principles Takaful Insurance of Africa has opened up a new market and brought into the formal financial sector Muslims who have traditionally stayed away from insurance due to their religious beliefs. This system offers an alternative to conventional insurance for customers who value ethical, fair, just and equitable insurance business practices. The act of taking measures against possible dangers or consequences does not go against the teachings of Islam.
Takaful is guided by the principles of improved welfare for all, which aims to establish a social order based on universal brotherhood.” Hassan Bashir
Finance
TIA awarding a beneficiary As described in the Qur’an, Prophet Yusuf (Alaihis Salaam) ‘filled the grain silos from the surplus of seven years of good harvest as a protection to ensure the availability of continuous food during the seven lean years.’ Takaful differs from conventional insurance cover in several ways. Firstly, in a conventional insurance scheme, the insured person sells his risk at a price to another party, immediately introducing an element of gharar into the contract. Under Shariah, a contract of uncertainty exists when the two parties involved are ignorant to the nature of the counter-value they are trading. A house may burn down, for example, costing the insurer a large sum of money, or it may not burn down, in which case the insured person has paid a premium and received nothing in return. The second key difference is that conventional insurers seek to invest in ventures that involve
interest or some form of activity, which goes directly against Shariah principles by introducing the concept of riba. A third difference is that conventional insurance is not mutually beneficial, as certain individuals, such as shareholders, benefit at the expense of others. Commercial insurance companies exist to first serve the interest of shareholders, not policyholders. Finally, 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 improved welfare for all, which aims to establish a social order based on universal brotherhood. While the conventional insurance contract is one of transferring risk from the insured to the insurer for a premium, the Takaful contract is based on the Islamic principle of tabarru, that is, a contract of self-insurance or selfguaranteeing among members of a group. Aspire Africa · July/Aug 2016
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TIA has partnered with the International Livestock Research Institute (ILRI) to provide insurance to pastoralist communities in the arid and semi-arid lands in northern and eastern parts of Kenya.
TIA awarding a female beneficiary
Africa Africa holds significant potential for the Takaful model. Sharing, cooperation, and standing for one another is part and parcel of the culture across the African continent, therefore the model fits very well into the social and welfare nature of Africa. Overall, with the exception of South Africa, penetration is very low, on average below 3%, meaning it remains a largely untapped market. The Takaful model has the potential to expand the rate of consumption of risk management products in Africa. As it currently stands, in early 2016, TIA runs operations in Kenya and has recently opened an office in Somalia, with discussions ongoing to move into several interested countries such as Djibouti, Tanzania and Uganda. TIA has also partnered with the International 6
Takaful Insurance of Africa - Kenya
Livestock Research Institute (ILRI) to provide insurance to the pastoralist communities in the arid and semi-arid lands in northern and eastern parts of Kenya. For the first time in Africa, an insurance policy that combines an Islamic-compliant financial instrument with innovative use of satellite imagery is offering insurance to compensate for drought-induced losses. The herds are insured with an Index-Based Livestock Insurance (IBLI) product, branded as Index-Based Livestock Takaful (IBLT). IBLT uses satellite imagery—measuring the conditions of grazing lands—that is fed into an algorithm to predict livestock losses. Predictions beyond the 15% level trigger indemnity payments. The goal of TIA in its partnership with the ILRI is to show pastoralists that they can use a fair and ethical business model to protect their assets from the natural hazards of keeping livestock in East Africa.
TIA was licensed to be the first Shariahcompliant Family Takaful Operator in East and Central Africa in 2013.
Takaful earns a management fee from participants who pay contributions to become members of a fund or risk pool. The pool receives contributions and makes payments when the contract pays out. Any resulting surplus is distributed equitably to those members who are not recipients of the payout. Experts at ILRI say that in semi-arid and arid regions, adequate insurance can make keeping livestock a more effective and sustainable livelihood strategy and can act as a cushion to household assets and income in times of distress. Initial studies from other pastoral regions that have access to the IBLT product showed that droughts were less likely to damage diets in households that had bought insurance. The insurance was also linked to a 50% drop in distress sales of livestock and a 33% drop in reliance on food aid.
Looking to the Future The company’s work in Africa and beyond has seen it reach many milestones since its 2008 inception, including being licensed as the first Shariah-compliant TIA Pension Scheme in East and Central Africa in 2012 for Corporate Schemes. TIA was also licensed to be the first Shariahcompliant Family Takaful Operator in East and Central Africa in 2013. Additionally in 2015, TIA received the licence from the Insurance regulator in Kenya to be the first Shariahcompliant medical scheme for corporate organisations in Kenya and the region. TIA also won two awards at the prestigious Marketing Society of Kenya Awards Gala in 2011, for Best Launch and Best New Market Entrant, and gained a nomination for the award for Best New Takaful Operator at the
Finance Islamic Business & Finance Awards held in December 2011 in Dubai. In 2012, the company continued this success by winning the Special Award during the Annual Insurance Awards for introducing a new way of insurance as a mark of true innovation, helping to increase the penetration of insurance services. It was also nominated in two categories at the Islamic Business & Finance Awards 2012, for Best New Islamic Institution and Best Takaful Operator for Africa, before winning Best Takaful Operator for Africa in the 2013 Islamic Business & Finance Awards in Dubai. Other successes include winning the Claims Settlement General Award in 2014 at the Annual Insurance Awards in Kenya. All of these significant recognitions show a true commitment from the company to its brand promise. In addition, the Kenya Reinsurance Corporation (KenyaRe) recently launched a ReTakaful window, marking a significant step in the right direction for Takaful operations, which will now have equally Shariahcompliant ReTakaful. This further reflects the confidence the Kenyan Government has in the Takaful model and its underlying values. Legal elements in Africa are still heavily weighted in favour of conventional insurance. Sudan is the only country in Africa that has legalised its financial sector under Islamic Laws and Regulations, and most other countries largely use conventional insurance laws. In Kenya, for example, the Insurance Regulatory Authority has been supportive by approving the commencement of Takaful operations. The Insurance Act is currently being revised and Takaful Insurance of Africa has submitted its recommendations. Aspire Africa ¡ July/Aug 2016
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www.takafulafrica.com
TIA with Abubakr Ali, CFO, Gulf Energy The Takaful model will continue to expand across the African continent with the help of some key changes, such as individual countries revising their existing financial sector laws to encourage ‘one stop shop’ complimentary regulations that will motivate clients to get Shariah-compliant banking, Takaful, Pension, Asset Management and Capital Markets Likewise, standardised regulations across regions will promote business opportunities including ReTakaful and offshore investments, and exploitation of existing ICT opportunities will increase penetration, access and affordability of Takaful and ReTakaful, including partnerships with mobile platform companies and social media. 8
Takaful Insurance of Africa - Kenya
The introduction of Exchange Training Programmes between the established markets in Asia and the Middle East and those emerging from Africa will help transfer knowledge and best practices and grow a rich human resource to meet the demands of an ever-increasing customer base. Innovation in terms of unique and affordable products that are relevant to various segments of the market cannot be over-emphasised. The players that will give priority to micro Takaful products with matching pricing to suit the lower end markets will outperform everyone else, reflecting huge numbers in the returns. ASPIRE
www.Aspire-Africa.com
www.takafulafrica.com CIC Plaza, 3rd Floor Mara Road, Upper Hill, Nairobi, Kenya Tel: +254 (20) 2725134/5