Takhaful Market – largely untapped
The desire to increase the insurance penetration rate in Ghana has generated a lot of ingenious interest for stakeholders to have products that could catch up with every untapped segment of the economy. Indeed, the National Insurance Commission (NIC) has invariably been at the forefront of this campaign.
Advertisement
The regulator recently announced that it was going to encourage insurers to introduce Takhaful Insurance which is largely an Islamic Insurance model.
Indeed, much as it sounded a novelty, the announcement was one of a welcome news to many a Muslim in Ghana. To many a practitioner, this is perhaps the first time it is being given the needed hype to make members of the insuring public prepare to sign on to these policies.
Expectations from Takhaful
According to the NIC, Takhaful (or Takaful) insurance is expected to play a key role in building Ghana’s insurance industry in the bid to diversify the market and boost premiums. Ghana’s Commissioner of Insurance, Ms Lydia Lariba Bawa intimated that a consultant will be engaged to make recommendations on the implementation of Takhaful insurance.
This is part of the commission’s effort to increase insurance penetration in the country such that all working Ghanaians in all sectors of the economy would have access to insurance services and products.
Is Takhaful Islamic Insurance?
In Ghana, it is believed that Islamic funerals are inexpensive and less cumbersome, compared with other forms of funerals. This thought, is largely fueled by the rather swift interment of our deceased Muslim brothers and sisters which is in accordance with the Islamic faith. This notion notwithstanding, our Muslim brothers and sisters also have a great deal of responsibility within the Muslim community, particularly in their families. In this regard, the need to indemnify oneself and their dependants against the distresses of life has become more imperative, particularly to ensure the family’s continued survival. As micro-insurance development is yet to be fully firmed up in Ghana, so being agricultural insurance, there is also an insurance model called Takhaful. This line of product is generally perceived as being targeted at members of the Muslim fraternity and for that matter strictly for Muslims. Though not entirely the case, this perception might be fuelled by the typical manner in which Muslims believe in their profit-sharing business models unlike non-Muslim business models where profit-making is the main item on the business agenda!
What is Takhaful?
Also referred to as Family Takhaful, Takhaful is a contract that protects individuals against financial losses resulting from death. In the case of family Takhaful, the loss or death of a person, apart from emotional loss, also comes with financial loss borne by the family of the deceased.
The role of Takhaful is therefore to share the risk with the Insured, by allowing members to participate in a scheme to share the risk and help ease the burden on the family, in the event of a member’s death. To share the risks, each member contributes a defined amount for a defined period for a defined benefit or cover.
Other Trending Stories
Minimum and maximum age limits are also defined. Indeed, participating in the Takhaful Schemes is considered a noble act as participants are given the chance to help one another.
Takhaful is based on Sha’ria, the Supreme Islamic law, and explains how it is the responsibility of individuals to cooperate and protect each other. This concept has been practised in various forms since 622 AD. Muslim jurists have acknowledged that the basis of shared responsibility laid the foundation of mutual insurance known as Takhaful.
The Tabarru Fund
This fund is referred to as the risk fund. The management of the fund is done with utmost best practices with the intention of first, accumulating as much funds as possible to help those in need, and also to make as much investment income (profit) as possible for their clients.
The insurers therefore need to build the Tabarru fund as quickly as possible to enable them pay claims in the event of death, disability and/or any other covered mishaps to their members. When a person passes away, the initial death benefit is paid from the risk/Tabarru fund.
On the other hand, if the individual’s contribution exceeds the defined death benefit, the former is paid. This ,therefore, calls for prudent underwriting. Thus, where no or less claims are paid, the investment records a surplus, which is then shared under the Mudharabah contract (Profit sharing).
How do policyholders benefit from Takhaful?
Principally, when a policyholder enters into a Takhaful scheme, s/he is not expected to have any intention of making money. His or her intention would be to share his wealth through contributing money or giving his or her money as Tabarru towards a fund that is used to help another person in the event of need. Contributors should look beyond worldly rewards and be rest assured that when their time comes to face death, the managers of the fund shall also ease the burden on their families. The risk fund and the special fund are the Tabarru funds. Hence, in essence, there are two types of pool funds being maintained under this model; the investment accounts and the Ta’awuni Account and both accounts are invested to earn surplus. Under Takhaful, the investment accounts belong to the individual policyholders, as such, the insurer allows for partial withdrawals at defined intervals. However, upon a terminal claim or surrender, a policyholder may claim the entire funds in his / her investment account.
How do insurers benefit from Takhaful?
Under a Wakalah (special donation/caretakership) component, Takhaful insurers earn their income through the management expenses charged, which is embedded in the contribution PLUS a defined fee (10% in the case of Takhaful Ikhlas) charged out of the surplus from both the Investment and Ta’awuni accounts. Insurers must therefore be cautious of the costs incurred in order to avoid overruns. From the actuarial perspective, the assumptions used in the product pricing would usually depend on the type of benefits on the policy, which is often based on incidence rates such as mortality, hospitalisation, morbidity, etc expenses which include management expenses and commissions to Agents as well as expected profit rate or investment and perhaps a small profit margin, although this is rarely done to avoid higher contribution.
Takhaful underwriting
Just as in conventional insurance, individual participant’s health and financial backgrounds are assessed, especially, for a large sum of cover, if an applicant is found to display any signs of health impairment, further questionnaires or medical reports are required to be submitted. The reports will then be assessed and the decision is normally to accept as standard, load with extra mortality, postponed or declined.
Takhaful in Ghana
Currently, only a few insurers in Ghana underwrite Takhaful policies, since the concept is still at the nascent stage. That explains the reason the NIC is positioning itself to blossom its introduction to enable more insurers to embrace it.
The way forward
There is no doubt that the market for Takhaful Insurance does exist; however the challenge remains largely with how it is appreciated. The concept though laudable, is yet to be fully appreciated in Ghana. Besides, the Muslim community in Ghana remains, largely, unaware of the existence of Takhaful products. The various insurance strategic bodies such as the Ghana Insurers Association (GIA) and Ghana Insurance Brokers Association (GIBA) must ,therefore, support the NIC and take immediate steps to sensitise not only the Muslim community but every insurable working person some more about its existence and the need to patronise such products, as this will consequently inure to the wellbeing of both the Muslim community and Ghana as a whole. While existing insurers are encouraged to roll out Takhaful products, adequate feasibility studies and a more thorough education cannot be under-estimated.
Until next week, ‘This is insurance from the eyes of my mind.’ — GB