By: Lamia Nabil
The 7th international Takaful summit’s third session today was titled “The Distribution of Takaful Products”, and discussed the importance of creating new distribution channels for takaful products. Insurance and Takaful companies are pursuing various innovative approaches and more rewarding experience yet regulatory compliance schemes to attract, motivate and support the distribution channels and sales agents to strive for greater productivity and sales achievements.
One of the most significant changes in the financial services sector over the past few years has been the growth and development of bancassurance. Banking institutions and insurance companies have found bancassurance to be an attractive and profitable complement to their existing activities. The successes demonstrated by various bancassurance operations particularly in Europe have triggered an avalanche of mergers and acquisitions across continents and efforts are currently underway to replicate the early successes of bancassurance in other parts of the world as well.
Managing Director of Nile Family Takaful (NFT) Sameeulhaq Thanvi, mentioned that traditionally insurance products have been promoted and sold principally through agencies in most countries. With new developments in consumer behaviour, the evolution of technology and deregulation, new distribution channels have been developed successfully and rapidly in recent years.
“The bankassurance environment is totally different from that of agencies,” he said. “With agencies we start with the client from scratch; while for bancassurance, banks already possess solid client lists.”
He also added that the key success factors for bankassurance were their compensation methods and sales processes.
Senior Regional Executive of Takaful at Prudential Dawood Taylor said that a frequent mistake made by many bankers and insurers was their failure to develop unique strategies specifically for takaful products. Instead, they simply extend their traditional agency distribution approach, because they view insurance as just another means of reaching their existing market of affluent consumers. Agents typically target the affluent because the average revenue per customer is sufficient to support the fixed and variable costs of the distribution system. The agency channel thus perpetuates itself: commissioned agents sell to affluent customers because they generate enough revenue to make it profitable to sell to other affluent customers.
And because agents are the insurance company’s true customers, insurers provide them with products suitable for sale to the affluent. But takaful products are really more suitable for low-high income consumers, he continued, thus the need to innovate new distribution channels to promote further takaful products that will more adequately serve this segment.
The final session discussed promoting takaful products for non-Muslims. One of the greatest challenges is the misconception that takaful is for Muslims only. Due to its explicit ethical structure, takaful can be marketed for both Muslims and non-Muslims. In multiracial Malaysia, for example, takaful products have attracted even non-Muslim communities.
The belief that takaful is only for Muslims has been refuted. This is, however, not enough to cultivate a culture of awareness for takaful products. Although takaful products are faced with challenges such as immature banking infrastructure, awareness can be cultivated by offering a wider range of takaful products and alternatives to those offered in the conventional market.
The real potential of takaful products, the panel concluded, lies in their solid ethical structure. This structure serves as an offshoot to the principles of fairness and the sharing burdens among members of a given community, and will thus extend protection to its less fortunate members. On this basis, takaful products stand a chance in being accepted by both Muslims and non-Muslims, despite the obvious religious and cultural differences between Muslim and non-Muslim societies. It seems probable too that takaful companies will begin attracting new clients from the existing conventional insurance franchises. Takaful is now being practised as an alternative to the conventional insurance system.
Thanvi said that in targeting non-Muslims it is important to change the ‘product label’ from than “Islamic” or “takaful” to perhaps “ethical insurance”.
Moreover, increasing awareness of Islamic finance, counts as one of the most vital ways to help the public with real microfinancing projects especially through microtakaful.
“Sharia scholars’ education also needs to be more practical in nature,” concluded Professor Shahinaz Rashad Abdellatif, executive director of the Metropolitan Training Academy and Metropolitan Consulting. “This is especially important when dealing with financial aspects of Islamic law, to shrink the gap between the financial specialist in the field and the Sharia scholars who set the theoretical foundations of these practices”