Dubai- The global takaful (Islamic insurance) sector is expected to continue its rapid growth and become a significant contributor to the global "risk transfer" market place, while it is already an alternative insurance model in the Gulf , according to Standard & Poor's Ratings Services.
The credit rating agency said the global competitive environment will remain challenging for the Islamic insurance sector.
Because of takaful's small market share, Standard & Poor's report warns that if takaful providers are to survive, they must continue to prove that takaful is a credible alterative to traditional insurance models.
Because Islamic scholars consider the classic risk transfer model through insurance to be unacceptable for use in Islamic communities, the Sharia-compliant takaful model has become increasingly popular in a region where insurance markets are otherwise very poorly developed, according to the report, titled "Takaful Spreads Its Wings As An Alternative Insurance Business Model."
The world's Islamic population is estimated to comprise some 25 per cent of the total. In recent years, the takaful model for insurance has come to be considered a key factor in increasing insurance awareness and delivering a successful, expanding business platform.
This can be seen most clearly in the Gulf, which is also capitalising on rapid positive economic development.
In the UAE, overall market gross premiums grew by over 30 per cent last year. Premiums within the takaful sector increased by roughly twice this rate, so these companies are growing very rapidly within a dramatically expanding economy.
Similar takaful contribution growth rates are evident in other regions. However, takaful activity is low in absolute terms, contributing less than 10 per cent of the total regional market share, the agency said.
"The opportunities for increased uptake of takaful insurance in the GCC should be positive," said Standard & Poor's credit analyst Kevin Willis.
"The considerable economic growth in the region, coupled with a sizable, underinsured population, means that there are substantial prospects for further development of personal lines cover," Willis said.
