Diversification of Islamic Financial Insturments
37
After Sudan in 1979, Malaysia was the first country to establish a Takaful company. The
Malaysian government had set up a task force for studying feasibility of Takaful companies’
establishment in the country, and the first company, Takaful Malaysia, was established in
1981, commencing its operations in July 198512. By 2013, Takaful operators were active in
other South east Asian and GCC countries including Saudi Arabia, Bahrain, UK (in 2008),
Kuwait, UAE, Qatar, Indonesia, Nigeria (2013) and Pakistan, and the total gross Takaful
contributions exceeded USD 12 billion13, with EY estimates suggesting a size of USD 20 billion
by the end of 2017. The different Takaful products available (individual and group) include:
 Motor Takaful (Also referred to as ‘Auto’, car insurance is compulsory in many
jurisdictions)
 Marine Takaful
 Commodity Takaful
 Fire
 Property
 Health
 Family Takaful
 Savings plans and Banca Takaful products
 Micro-takaful 14, in some jurisdictions only such as Sudan
 Agricultural takaful
 Miscellaneous
The Takaful industry in any given country may include both full-fledged companies, and local
insurance companies operating Takaful windows. Takaful firms sometimes operate solely as
either Family or General Takaful operators, and sometimes offer both products. Only a selected
few jurisdictions, located mainly in GCC states (excluding Malaysia and recently Singapore)
such as Bahrain, Dubai and Sudan have Re-takaful companies. Family Takaful differs
inherently from General Takaful. The participants’ funds in a Family Takaful can roll over to
subsequent years, with Life insurance plans being typically long term in nature. These
products include contracts of indemnity but also contracts of benefit. In the latter, the
participants (mostly the family breadwinners) contribute to a plan to compensate their family
members in the event of their passing15, choosing the maximum coverage they wish to be
entitled to (with the premiums varying accordingly). However, family takaful products
(including Banca life takaful ones) are also saving plans, where the participants can withdraw
the accumulated fund with a significant gain after the contract expires, while their
beneficiaries are paid in the event of the participant’s death during the contract period. In
general Takaful, however, including health, fire and motor, the plans by their very structure
are often not able to accumulate enough funds to cover all the claims. There is also the element
that the maximum claim (the cost of indemnity, such as in the event of a fire) can often not be
known beforehand, and the Takaful participants can have multiple claims over the duration of
the contract. In essence, the contribution balances are typically not rolled over with each
policy period. Unlike family takaful, if a participant pays $200 for a general takaful product,
12 Takaful Malaysia Annual Report 2016
13 Ernst and Young, 2014
14 Micro Takaful refers to products designed for the financial needs of low-income groups, to enable them to get partial relief
from unexpected events, major expenses or financial difficulties.
15 Often different benefits are paid in event of natural death and accidental death. Benefit is also paid to the participant in
many Life takaful products in the event of permanent disability