Takaful penetration still low in Oman, says CMA

Poor market awareness of takaful as a product that is quite distinct from its conventional version is among factors weighing down the uptake of sharia-based insurance in Oman, according to key official of the Capital Market Authority (CMA), the regulator of the insurance industry in the Sultanate.

Ahmad al Maamari, Vice President — Insurance Sector, said takaful penetration in Oman and the wider region averages a dismal 1–2 per cent, versus 7–9 per cent in well-developed Islamic financial markets around the world.

Taking part in a panel discussion at the IFN Oman Forum, which was held at the Grand Millennium Muscat on Tuesday, the official said the takaful business nevertheless continued to register growth in the Sultanate. Islamic-based insurance now accounts for around 10 per cent of the overall insurance business in Oman. Growth was around 8 per cent in 2017, up from around 7.8 per cent a year earlier.

Still, given the presence of takaful operators in Oman for the past several years, the uptake of this sharia-based offering is below expectations, he noted.

Part of the problem, Al Maamari said, was the dearth of suitable and innovative sharia-based insurance products in the market. Insurance coverage mandated by law, notably motor insurance, accounts for 37 per cent of the total insurance business. Health coverage, while still not mandatory, accounts for a 20 per cent share. While takaful has benefited from growth in these two segments, the overall uptake is still low, he pointed out.

Another key stumbling block for takaful growth is the inability on the part of many people to see any difference between takaful and conventional insurance, the official said. This challenge can only be addressed if the various market players and stakeholders, including sharia scholars, engage in a serious discussion on what constitutes takaful and what does not. “It’s like a back to basics exercise,” he explained.

Another question that needs to be resolved is the potential for conflict of interest between the shareholders and participants in a takaful company. Investors, he noted, typically have unrealistic expectations on the returns on their investments in a business that involves essentially long-term investments. This dilemma puts a lot of pressure on company managements which need to balance the interests of the shareholders and participants, he said.

Al Maamari said he was not simply calling for steps to generate growth in Islamic banking and takaful businesses, but rather that this growth be sustainable. Consequently, takaful growth should not be achieved by competing with conventional insurance, but rather by opening up new markets segments — something that Islamic banking and takaful have so far failed to achieve, he stated.