ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has allowed existing companies to offer Takaful products which would prove to be a major initiative for expansion of the Islamic insurance network in the country.
Muhammad Ali Chairman SECP told reporters here on Tuesday that allowing traditional insurance companies to offer Islamic products is a big development. “Takaful-widow has been provided to existing insurance companies.”
Another major development in the insurance sector is that the SECP has formed an ‘Insurance Industry Reform Committee’ with five sub-groups including legal, technical, marketing/technology, operations and products etc to ensure easy availability of insurance products to common man.
On introduction of the new Takaful Rules, a number of Takaful service providers in Pakistan will increase substantially as the conventional insurance companies will also be allowed to offer the Takaful products. This is a key initiative that would be instrumental for the growth of Islamic insurance in Pakistan.
The SECP has estimated that the offering of the Takaful products by existing companies would also expand the overall insurance base.
At present, three General Takaful (non-life insurance) and two Family Takaful (life insurance) companies are operating in Pakistan, but it is expected that after the promulgation of new Takaful Rules, the number of Takaful service providers will increase substantially as conventional insurance companies will also be allowed to offer the Takaful products.
About basic concept of Islamic insurance, he explained that Takaful, the Islamic alternative to traditional insurance, was a scheme based on the principles of mutual assistance in compliance with provisions of Islamic Shariah.
So far, the insurance business in the country was being done on traditional basis.
Previously, only new insurance companies were allowed to offer Islamic products. The existing insurance companies were not allowed to offer Takaful products.
Now, these companies have also been allowed to offer Islamic products. The existing companies have wide insurance network in the country along with clientage and capital base.
It has been witnessed that since existing conventional companies have an edge in terms of better re-insurance & re-takaful accessibility with years of expertise, along with customers having brand loyalty, such companies may serve the larger portion of the market with their large sales force and vast branch network.
Responding on a question on the difference between existing insurance and Islamic insurance, Muhammad Ali explained that a number of people were reluctant to obtain insurance terming it non-Islamic. The ratio of insurance in the country was already very low and Islamic insurance would attract a large number of persons to obtain insurance.
The ratio of insurance penetration in Pakistan is just 0.7 percent against 5-6 percent in regional countries.
The total insurance coverage would increase after allowing existing companies to offer Takaful products.
Under the SECP’s plan, the commission wanted to increase the percentage growth from 0.7 to 1.2 percent in insurance sector over the next three years. This requires 25 percent growth on annual basis for reaching the figure of 1.2 percent.
Muhammad Ali also said that the commission strongly supports promotion of Islamic re-insurance in the country.
Background of the issue revealed that the existing Takaful Rules were issued in year 2005. During the course of business activity and implementation of these Rules, a number of practical issues were highlighted by the stakeholders.
To address these concerns, the Securities and Exchange Commission of Pakistan (SECP) constituted a Committee in year 2007 with a mandate to review the existing Takaful Rules and recommend the possible enhancements.
The Committee laid special focus on the areas including the coherence with accounting provisions of the SEC (Insurance) Rules 2002, guidelines for allowing conventional insurance companies to do Takaful business through specialised “window” operations, prescribing of percentages in respect of various modes of the Shariah complaint investments for the purpose of determining solvency, among others.
The Committee, after detailed deliberations, finalised its recommendations based on which the new Takaful Rules had been drafted. The SECP reviewed the draft rules.
After seeking the opinion of Shariah scholars and legal experts, the draft of new Takaful Rules had been approved by the SEC Policy Board.