Kuwait International Conference on
“The Experiments of Change Towards the Application of
Islamic Shari’ah in the Economic Field”
Takaful Ta’awuni – The Bank Aljazira Experience
by
Mr Samee Thanvi
Division Manager, Individual Sales
30th & 31st May 2005 at the J W Marriott Hotel, Kuwait
Presentation Overview
A Brief Overview of the BAJ Takaful Ta’awuni
(BAJ/TT) – Islamic Life Insurance
Takaful Ta’awuni Development Road Map
What Is Takaful Ta’awuni?
“A Shari’a compliant, long term,
mutual life insurance, savings and
investment program.”
Definition of Takaful Ta’awuni
Takaful
Mutual guarantee or indemnification among the
group members
Ta’awun
The act of mutual help and assistance between the
participants within the group
“The fortunate few assisting the unfortunate many”
Life Takaful Development “Road Map”
Initial Takaful Concept Development
Initial Sharia Approval of Model
Product Development
Business/Actuarial Model Development
Initial Regulatory Approval
Marketing & Sales Development
Operational Development
Final Shari’a Approval
Final Regulatory Approval
IT Development
Business Evaluation
Finalise Retakaful/Reinsurance Treaties
Recruit and Train Staff
OPEN FOR BUSINESS
Steps to Consider
Develop in conjunction with specialist consultants to provide
expertise or in partnership with a Takaful or insurance
company
Research and identify the potential target market
Take decision on General or Life products or a composite
offering both
Decide on investment strategy; unit-linked funds or pooled
investments
Determine which Takaful model to adopt:
Wakala or Mudharabah ?
Initial Shari’a Approval of Model
Wakala
-
A Fee Driven Islamic
Contract
Mudharabah
-
A Profit Sharing Islamic
Contract
Family Takaful - Long Term Plans/Group Takaful - 1 Year Plans
Fees
Full Operational
Expenses
Wakeel/
Operator
Fees
Participant
Contribution
Specified
As:
• Tabarru’
• Savings
• Fees
Risk A/C
Tabarru’
Individual
Savings A/C
IIA
IRIA
Risk A/C
Tabar’ru
Claims/
Direct Exps.
Individual
Savings A/C
Surplus
IIA
IRIA
BAJ Adopted WAKALA Model
Salient Features of a Wakala Model
Fees only taken if a product is sold
No charging of expenses to the participants fund
Operator alone totally responsible for all start up
expenses and operational costs
No issue of agency or commission sales
Clear separation between participant and operator
Wakala Fee on Surplus accepted by Shari’a advisors
Total transparency on all aspects of the operation
and fee structure
Business Actuarial Model Development
Product pricing requires research on competitor products
(Islamic & conventional), sales compensation costs and
Operator profits/income needs
Competitor Analysis. Takaful products should not need to be
more expensive than conventional products
Breakeven Scenarios
Sensitivity Analysis: Eessential to understand the possible
future scenarios to help management plan accordingly
Synergies with
Banking
and
Investment Industries
Benefits for Islamic Banking and Investment Industries
Shari’a/SAMA
Approvals - time
to business
Reduced UpFront Costs for
TT/ITOperations
Assets Under
Management
Full Product
SuiteIndiv/Group
Image and
Reputation
BENEFITS
Expanded
Customer
Base- Indiv &
Corp
TT-IT-System(Bilingual)
First Mover
Advantage
Customer
Retention
Core Takaful
Management
Competencies
Opportunity
for
International
Expansion
Synergies:
• Cross-selling
Assets Under Management
Utilizes existing Islamic Equity and Other Funds
Significant increase in AUM as TT Program grows
due
Avoids risk of fund withdrawals during an economic crisis
to the Long-Term savings goals of Takaful
Expanded Client Base
Takaful will expand and deepen client
base, adding both new Individual and
Corporate clients
Customer Retention
Heightened Client Retention due to Takaful relationship
Bancassurance in combination with Current and Deposit
Accounts extends the odds of losing a Customer
Current Account Only
1:1
Deposit Account Only
1:2
Current & Deposit Account
1:10
Current, Deposit & Bancassurance 1:100
Source: American Bankers Association
Synergies: Cross-Selling
Cross-Selling: Banking Products sold by TT distribution
network
Valued-added services for existing Corporate relationships
and improving portfolio profitability via TT cover on
corporate and individual loans
Product Development
Develop the range of Individual products that best suits your
market. This could be a single “Jack of all trades” product, or
a product range capable of providing for the needs of the
participants in your market
Development of a Group product range can complement the
individual product range
Supplementary riders can add value to a product range whilst
providing essential risk cover for the participants
Individual
Products
Corporate and Group Plans
Group Takaful Products
Group Term Life
Group Credit Life
Group Retirement/Pensions
Initial Regulatory Approval
Development received full support of Saudi Arabi
Monetary Agency.
Explanation of takaful concepts so that the regulator
can fully understand the basic principles.
The need to have 100% Sharia and SAMA approved
funds was essential to the approval process.
Marketing
&
Sales Strategies
Sales Model
Agency?
Direct Sales Force?
Bancassurance?
Cross Selling?
Through Islamic banks or Islamic
windows in conventional banks?
Operational Development
Agree underwriting arrangements with reinsurers/retakaful
operator
Medical examination facilities to be evaluated and medical
examiners to be appointed
Forms Design-All BAJ takaful forms are stored in a central
library on the IT system.
Policies and Procedures developed and published
Contribution Payment Facilities established. In BAJ’s case,
principal payments made through SAMA direct debit systemSARIE
External and Internal Legal review of all contracts and
documents
IT Development
Essential that Takaful life operation is underpinned by a fully developed
and comprehensive IT system
No known life takaful software system in existence
Bi-Lingual capabilities essential
Multi-Currency facility required for international development
Future flexible product development an essential part of the IT
development
Sales Lap top illustration capability essential
Unitized Investment module essential to maintain a fully auditable record
of a clients savings/investment account over the life of the contract
Fully tested by external actuaries before going live.
Penta Takaful - Components
New
Business
Contract
Servicing
Plan Wizard / Product Setup
Claims

Contribution Processing

Unitization
Agency Management
Payments Processing
Security
Retakaful
Reports and Enquiries
Consists of three main
functions independent
of each other.
Eight major functions
span across the three
independent functions.
External Business Evaluation
An internal audit requirement to bring in external business consultants to
evaluate the development, processes, IT system and business prospects
External business and process evaluation included but was not limited to
the following:
Business strategy
Market segments and prospects
Processes
Pricing
Profit projections
IT development
Business Model
Final Sharia approval
Review of all contracts and contract wording
Review and approval of contentious issues:
Suicide-Beneficiaries to be paid or not?
Age-Minimum and maximum age of contract holders
Can the contract be whole of life or to a maximum age?
Personal Accident. Can it be included to pay as double indemnity?
Islamic Inheritance Laws-Are they applicable?
Surplus sharing-On what basis and can the operator receive a surplus
share or surplus performance fee?
Reinsurance/Retakaful-Dispensation, can it be given for reinsurance?
Issuing of Fatwa, declaring that the takaful program is sharia
compliant- 1st in KSA
BAJ Fatwa
Finalise Reinsurance/Retakaful Treaties
Reinsurance or Retakaful
Group and Individual treaties-one or two reinsurers/retakaful
operators
Rates-significant issue in a new life market
Payment arrangements formulated
Claims process to be agreed
Surplus arrangements
Facultative Arrangements
Final Regulatory Approval
Full documentation to be provided to the regulator-Saudi
Arabian Monetary Agency (SAMA)
Standard illustrations with hypothetical growth rates for
comparison to local competitor products
Brochures provided for evaluation
Contract wording and cancellation charges to be transparent
Reinsurance treaties
Official SAMA Approval issued-1st in KSA
Recruit and Train Staff
Advertise and recruit staff
Expatriate v Saudi-significant issue for BAJ. Policy taken that
all Takaful sales advisors (TSAs), would be Saudi Nationals
Tied
“Agency”
development-Salary
commission concept
plus
advanced
Develop with legal division a sales staff contract
Training-must consist of both traditional insurance sales
concepts with a major element of takaful theory and
practices.
Open for Business
Soft Launch into the market was the BAJ approach
Evaluate market penetration and sales after six months in the
market
Amend sales approach or direction after initial evaluation, if
proven necessary
Accelerate
operations
development
to
include
nationwide
sales
In Summary
Determine which area of Islamic insurance you wish to enter
Evaluate the Islamic contract best suited to your needs
Either hire or contract with experienced insurance and takaful
practitioners
Work closely with your regulators