Justin Lee, Senior Vice President
“Takaful”- an Islamic alternative to conventional insurance that has been around since 622 CE – shares several similarities with P2P insurance, and for Malaysia, which is one of the world’s largest Takaful markets, there are opportunities aplenty if the country can ride the growth in the popularity of P2P insurance.
Both Takaful and P2P insurance provide for a degree of risk pooling by the participants/members. Their models are much more transparent on premiums/contributions and claims than conventional insurance. They look to transition from an individual-insurer relationship to a balanced one between individuals, and in doing so bring a greater element of trust back to insurance.
There are some differences though – the use of technology being the most obvious one. There is also a difference in the size of the pools, and this can have an impact on customer trust. P2P insurance’s pools are based on a community “unit,” whereas in Takaful there are no limitations as to who can join the pool (even people of non-Islamic faith can be a Takaful customer). Both go a long way in improving trust with their customers, but the P2P insurance model does it better; trust is placed as much in the P2P insurer as it is in the unit that you are a part of.
The Opportunity in Malaysia
Malaysia is among the largest Takaful markets globally and comfortably the biggest in Asia, totaling just over MYR$60 billion (USD15.2 billion). The country has been very encouraging of Takaful and was the first country to adopt legislation specifically geared toward Takaful operations, accommodating both conventional insurance and Takaful within the same regulatory and legal framework. Various tax incentives and less onerous capital requirements compared to conventional insurance were allowed, but this is no longer the case, and it is now a much more level playing field.
Malaysia has been progressive in taking up Takaful. The hope is that the country can be just as progressive in adopting the technology and positive social aspect of P2P insurance to make it more relevant to today’s customers.
Link to Part I >>
This article was originally published on BRINK Asia >>
Click here to register to receive e-mail updates >>