An Interview with:
Mr. Tarig Khalil Osman
Managing Director, United Insurance Company
Event: Sudan Islamic Finance 2016
Next Phase of Development
In asking questions about Takaful Insurance, the normal view of economic growth will not be sufficient. One must take a few parameters, which makes this industry different:
> Takaful was established in Sudan in 1978 and only started gaining traction worldwide from the year 2000 in a very young market.
> Takaful’s growth is over 15% per year for the past 15 years and its estimated value as of 2015 is between 12 to 15 billion USD.
> There are less than 300 companies worldwide with over 50% in GCC coun-tries and 20% in Malaysia.
1. How do you see the impact of the global economic growth slowdown on the insurance industry, particularly Takaful? And in what ways are you using information to assist in making strategic and risk decisions for your organisation?
Although the global economy might be slowing down, our niche of Takaful Insurance has been growing mainly due to its infancy and acceptance as an alternate to conventional insurance. The growth of Islamic banking worldwide is also another major reason for the growth of our industry and for banks to be truly ‘Islamic’, their insurance services must be sharia compliant. When we look at the developing world in general, and specifically in the Africa region, the insurance sector is relatively very small with vast potential. For Takaful Insurance, the vast potential has become immense.
Our main approach in making strategic and high risk decisions is based on the development and implementation of a long term growth plan. During the period 2000-2010, the development of the relationship between Shareholders and Policyholders has can only be described as unique. The first partnership agreement was enacted in which the headquarters tower investment project was completed with great success for all involved. Since 2010-2015 a new relationship reached new levels with surplus distribution to customers and profits to shareholders reaching their largest numbers.
2. In retrospect, how would you describe the development of the global Takaful industry? And what factors differentiate Takaful in Sudan from other markets?
Takaful was created in Sudan in 1979 and since 1992 has been the only system in Sudan. During the past 37 years, the Sudanese Model has evolved into what is considered the most ‘Islamic’ model currently in the world.
To describe our system in general:
1. We conduct all insurance services under a wakalah model with all operations fees deduct-ed1 and insurance surplus/loss is presented to Policy Holders/customers for their disposal at the end of each calendar year.
2. At least one member becomes a full voting board member and is elected by and from the Policy-holders of the company.
3. All investments of the company are to be invested in Shariah compliant activities or industries under a Mudarabah or Partner-ship2 model, with Shareholders on a pre-agreed profit sharing agreement.
It is similar to a mutual fund in terms of our insurance services with all surplus/loss the sole ownership of the customers but the main difference is we make profits for our shareholders via our investments services.
The two other main models are the Saudi and Malaysian models. The Saudi model conducts all insurance services under a ‘Wakalah’ concept, however the distributed profits to Shareholders are calculated as 90% fees of Insurance Surplus. The issue of shareholders receiving any funds from Insurance services is not acceptable to the Sudanese model as the funds were donated to fulfil claims, and if there are no claims then the rest of the funds must go back to the Policyholders to decide on Surplus distribution.
In the case of the Malaysian model, the insurance services are conducted under the ‘Mudarabah’ system where the insurance surplus is divided between shareholders and policyholders; which has been declared non-sharia compliant by many Islamic scholars.
3. How would you describe the most challenging factors facing the Takaful industry in Sudan and the broader region? How concerned are you about further potential economic, political, social and business threats to the growth of your organisation and the broader industry in Sudan?
The issue of international banking and transfers as well as credit rating is our main concern. We are part of the international arena yet Sudan’s unique pariah status is causing serious issues.
In regards to the main issues facing Takaful worldwide, there is a lack of a unified body and the existence of three main models with each country creating its own unique model. There is also a lack of qualified scholars and the adaptability of shariah laws with local laws are all main areas of concern. We need to hold conferences across countries as well across regions. Nations think only locally and make rules that address their viewpoints, and in this case we need a unified cohesion for Takaful to truly grow into its potential. Even within the different models, a general outline that accepts different versions must be created. There are various organizations working to that end and they must be supported and endorsed further.
4. How widely are you looking to see how the takaful industry could be disrupted in Sudan? And how are you assessing the impact of increased competition, distribution channels and new technologies to your organisation?
We have no concerns of disruption from international entrants to the market yet. Local players can cause short term disruptions by creating a price war and /or providing inferior services resulting in the lack of trust in insurance companies. In our organization, we are embracing change by first instilling the right principles of Takaful insurance. We also believe that the insurance market is too vast for serious competition and there is more room for collaboration and creation of shared value rather than competition.
For the past three years, our customers have decided to annually distribute 40% of our insurance surplus as a bonus to our staff and as reimbursements to our customers. In regard to competition, we believe in alliances and are focused on creating strategic relationships between our competitors.
As the nature of our business involves reinsurance that is mainly conducted internationally, we have fostered special relationships where we distribute work locally.
5. What is your outlook for Takaful in Sudan in the short to medium term? And how will United Insurance maintain a competitive advantage over other operators in an already saturated market?
Our outlook for Takaful is really optimistic for both the short and medium terms. As we develop, we are creating an awareness that can only increase growth in Takaful, not only in Sudan but throughout the world.
In regard to United Insurance maintaining a competitive advantage, we believe corporate governance is key. In 2015 we were the first company in Sudan to create a new organizational chart with the appointment of a Managing Director who is in charge of the Investment Portfolio and the General Manager in charge of the insurance services of the company. We have also created Investment and Compensation committees that are composed of the Managing Director and Policy Holder Board Member and General Manager, as well a rotating Board Member. These committees were all made to create policies and procedures as well as oversight and guidance to all company operations. The inclusion of the Policy Holder Board member is to ensure customers benefit while the Managing Director benefits the shareholders and the General Manager benefits the employees.
In regards to competing in a saturated market, this relates directly to the blue ocean vs. red ocean theory. If we regard the existing market, it is so small that it is insignificant. But when we consider the potential vast blue ocean potential, we are at the tip of the iceberg and only now uncovering how vast it is. We have just recently started health insurance which we believe is one of the pillars of making Africa rise.
We believe our market is not yet saturated and there is an immense opportunity for companies to grow if we are able to spread insurance awareness between small/medium business owners and individuals as well as home owners where more than 90% are either non –insured or inadequately insured.
1. Insurance Supervisory Authority limits all operations expenses to not exceed 15% of turnover of the company
2. United Insurance was ﬁrst company to create a Partnership agreement with its Policy Holders in the building of it Headquarters Project