Takaful Dilemma Facing European Insurer

LONDON (Reuters-inazj9y2vm) - Major European insurers eyeing a move into the market for Islamic insurance, or takaful, face a tough decision whether to use diminished resources to secure an upper hand or risk losing ground to niche providers. “Some of the bigger players in Europe definitely have plans to offer takaful products. The question is when’s the right time to launch them,” Khan said at the Reuters Islamic Banking and Finance Summit.

The market is virtually non-existent in Europe and first movers could get a huge advantage, according to Mohammed Khan director for takaful business at PricewaterhouseCoopers.

Takaful is a Sharia law-compliant insurance structure in which members agree to provide insurance for each other by contributing to a pool of funds which are used to indemnify participants who suffer a loss.

HSBC (HSBA.L) estimates the market for such products in Europe will be worth $14 billion by 2010, while some industry players predict growth of 30-40 percent annually over the next three to five years.

A year ago firms such as Legal & General (LGEN.L) or Prudential (PRU.L) could have used their resources to steal a first mover advantage in the underserved market. Now though, such a move might be less feasible and new constraints could serve to delay moves into the market.

“We’re in a period where the deployment of capital is important. It’s not that easy to raise capital,” Khan said.

“It’s a question of choices. What products do I choose to back my capital with. At this moment in time that’s a pretty key decision for insurers,” Khan said.

The emergence of takaful specialists such as Salaam Insurance, which offers Sharia-compliant car and home insurance, adds to the pressure on larger insurers to do something.

Companies able to move quickly could cash in countries such as France where the Muslim population is estimated to be five million but supply is scarce, Khan said.

Many Muslims would likely be willing to pay a reasonable premium for Sharia compliant products, he said, but so far have not had the choice.

On compulsory insurance, such as car insurance, takaful players will find it tough to lure the target market away unless they can genuinely compete on price, but on term assurance deals and similar products, known as ‘family takaful‘, Khan is optimistic.

“From the family takaful perspective I think that’s a genuine greenfields opportunity,” Khan said. “I don’t think there are huge swathes of the Muslim population buying endowments.”