Modern platform technology can help (re)takaful operators sustain growth in a market where there will always be local nuances. Paul Buckle from Eurobase Insurance Solutions and Puneet Bharal from ACORD explain why.
The (re)takaful market has seen dramatic growth in recent times. Ernst & Young’s 2012 Takaful report puts growth, in 2011, at an impressive 19%.
The sector’s future looks promising with continued double digit growth forecast. This will be fuelled by the growth in the Muslim population which is projected to represent 33% of the World’s population by 2050, and 37% by 2100.
However, the generation of surplus funds is a key issue with (re)takaful providers generating a lower investment return compared to conventional insurers. Operational efficiency is therefore a major area of focus, with technology an important consideration.
Most existing technology platforms do not adequately provide the appropriate governance controls or workflows to consistently support (re)takaful operations.
This issue is compounded by the lack of (re)takaful specific regulation or legislation, and what has been put in place lacks consistency across territories.
Modern technology administrative solutions are available to overcome these issues and provide an operational advantage through efficiencies in governance and workflow management. Technology can help an insurer gain one version of the truth across all their (re)takaful operations, providing a real time view of performance. Industry data standards also help to minimise confusion and streamline administration by removing the need for, and errors associated with, manual re-keying and interpretation.
Since (re)takaful operators share surplus funds amongst the insureds, more efficient operators will be able to generate superior returns making them more attractive.
As the (re)takaful market expands to serve a larger number and broader spectrum of clients, markets and territories so the relevance of technology will increase.
A modern platform with good governance controls and workflow, will make it easier for operators to expand. Industry data standards will help fuel that growth further.
Whilst more consistency in (re)takaful regulation is needed to support growth, there will always be local nuances. Modern systems should be able to support regulatory requirements, business processes and local nuances on a single platform.
Theoretically, there is nothing to stop (re)insurers based in the London, US and Bermuda markets from setting up (re)takaful operations.
Many already have operations across the Middle East, North Africa and Asia, so the creation of a (re)takaful operation would not be a big leap.
Research conducted at ACORD shows that members of the not-for-profit insurance data standards body are thinking about where to find growth markets.
The Middle East and Africa and Asia Pacific regions are grossly under-insured. Rising incomes and infrastructure developments in these regions will provide revenue opportunities for the (re)takaful industry.
Research from Global Futures and Foresight shows that Muslim countries will account for 70% of global population growth from 2005-2050. By 2050 Muslims will also account for 20% of the population living within the countries of the European Union.
This growing market will require asset protection which fits its cultural requirements.
Multiple territories bring challenges
With no standardisation of legislation, regulation or data formats across the regional borders, it can be a challenge for (re)takaful operators to offer the common products across regional borders.
Policy administration technology can help (re)takaful operators solve this problem in some instances. Eurobase has a number of customers transacting (re)takaful business on its insurance platform, which demonstrates the ability of these platforms to support the (re)takaful market across different territories.
Reinsurance in particular is cross-border business. ACORD data standards can, and are, being used for (re)takaful insurance by administration technology providers such as Eurobase.
Data standards help to minimise confusion and streamline administration by removing the need for, and errors associated with, manual re-keying and interpretation.
However, not all systems are designed to be implemented as a single platform across multiple territories. It is not only about governance and workflow, but also the capability to manage multiple currencies and taxes. Where there are regulatory differences there is a cost to launching products in new territories. Products have to meet the requirements of the given territory, rating and processes.
Technology can help to ensure that speed-to-market is optimised and local nuances are accommodated.
Naturally, there are some challenges of cross-border operation that cannot be solved by technology alone. More harmonised regulation would lower the cost of launching products in new territories, ultimately benefitting the customer with better prices or higher quality products, and eventually through a greater contribution to the community.
Choosing a partner
The essential requirement from a software partner is that the platform provides robust process and governance controls to ensure that your operations adhere to the principles of (re)takaful.
While standardisation of (re) takaful regulation across borders will fuel growth, your operational platform must be flexible enough to address the unavoidable local nuances.
The platform must also provide a clear audit trail, evidence transparent processes and have the agility to change processes in reaction to regulator or market changes.
You should also ask is it data standards-based? Are the standards internationally accepted?
Natural events and political instability cannot be predicted, but can lead to an increase in demand for insurance covers. Carriers need to be able to react quickly to this unplanned demand if they want to share in new markets.
Data standards provide agility and flexibility. Working with small blocks is easier than starting from scratch each time. Data standards mean products and services can be re-configured more quickly, and risks on-cover are easier to interrogate.
Technology should be the enabler not a barrier in the change process.
Want to know more?
Eurobase Insurance Solutions and ACORD are conducting further research into technology and data standards in the (re)takaful market, aimed at expanding on some of the findings in this article. A White Paper will be published in due course.
If you are interested in knowing more about the challenges that the future (re)takaful market faces and would like a copy of the White Paper, or have a (re)takaful operation and would like to share your views please contact us, or complete our online survey.