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Takaful Operations: Issues and Recommendations on Marketing Takaful Successfully

Azah Atikah Binti Anwar Batcha


Islamic insurance, also known as Takaful, is the means of bringing both social and
economic benefits of modern insurance coverage, in a form which is consistent with religious
beliefs, to Muslims and to the emerging economies of many predominantly Muslim countries.
Therefore, the development of Takaful is crucial, and to economic development in a number of
countries with emerging market economies. It is therefore hardly surprising that the Takaful
industry is undergoing a period of rapid growth. However, the development of Takaful is still
facing formidable barriers that are largely due to the fact that the Takaful operators are not
handling and marketing Takaful properly as expected by most. Most issues identified which
hinder Takaful from being marketed successfully are stressed in this paper and
recommendation for the future are provided. It is still long way to go for Takaful to be completely
free from all the issues involved in its current practice. Thus, educating the public and
maintaining Takaful operations properly by the operators are needed in order to cater the

It is a natural fact in any society that everybody is exposed to all sorts of unexpected risks in his
daily life. These risks may occur to one’s life, property or even business ventures. The main
question which we should ask ourselves is that how do we prevent or help ourselves in such
unfortunate events? One method in doing so is by practicing or applying concept of insurance.
The main objective of insurance is to uphold, among parties involved, shared-responsibilities on
the basis of mutual cooperation in protecting an individual against unexpected risks.

In addition to the need for raising the level of consumption of basic amenities in life, individuals
need adequate and stable income from wage or self-employment, legal protection of their right
to livelihood in the informal sector, and protection against natural disasters or social disruption
(Getubig & Schmidt, 1992). They also need old age and child care, problems that have become
more acute (Getubig & Schmidt, 1992).

However, in this paper, we shall discuss about the concept of Islamic insurance, which is also
known as Takaful. We shall also discuss why Takaful operators are said to be merely mimicking
what Insurance companies do. Apart from this, issues and recommendation on how Takaful
operator could successfully market Takaful will also be address.

0.1General Concept of Takaful

Islam establishes permissibility rule which is not unallowable (haram) except where it is
prohibited by a sound and explicit rule from Quran or clear, authentic, and explicit
Sunnah (practice or saying) of Prophet Muhammad S.A.W when it comes to business
relationship among people (Iqbal, 2005). This applies to the concept of Insurance.

A Shariah- based insurance policy would never involve the unlawful elements1. In fact, it
would be based on al-Mudarabah (profit and loss sharing financing technique). In this
dealing, the participant pays contribution to the Takaful operator who runs a business
with the accumulated money. Then, the profits earned from such transaction shall be
shared by both the participant and operator accordingly (Billah M. M., 2003).

According to Billah (2003), an Islamic model of life insurance, the nominee is not an
absolute beneficiary but a mere trustee who is under who is under an obligation to
receive the benefits from the policy and distribute them accordingly among the legal
heirs of the deceased in accordance with the principles of al-Mirath2 and al-Wasiyah3.

Covering ourselves in the event of our death could benefit our loved ones and our
estate. However, depending on our policy, our benefits will vary from covering funeral
costs and medical bills to paying any outstanding debts (Razak, 2009).

Takaful is widely known from an Arabic word which means “guaranteeing each other”.
Takaful is an Islamic insurance which are basically based from the concept of ta’awun 4

This elements includes Riba (interest), Maisir (gambling) and Gharar (uncertainty)
An Arabic term which refers to what we called in English: Inheritance
An Arabic term which denotes a Bequest
It means Mutual assistance
and tabarru’ 5 whereby the risk that associated with it is shared among a group of people
voluntarily (Ismail & Abdul Razak, 2010).

There are many reasons affecting the need of Takaful and Insurance according to
Razak, (2009), such as:

(a) Income-replacement needs

(b) Final-expense needs

(c) Readjustment-period needs

(d) Debt-repayment needs

(e) College-expense needs

(f) Government Benefits

(g) Existing Insurance and Assets

According to Venardos (2006), in Malaysia, there are two forms of Takaful insurance
which are explained below:

(i) General Takaful Insurance

The types cover offered are fire, motor, accident, marine, personal accident,
workers compensation and employers liability. The participant determines the
amount for which he wishes to insure, and pays his Takaful contribution to the
company. The amount of contribution is assessed on the value of the asset to be
covered. The contract runs for one year and specifies that any profit will be
shared in a given ratio if the participant does not make any claims. The company
pools all contributions and invests them in halah investments. The participants
agree that the company shall pay compensation from the general fund to any
fellow participant who might suffer a loss, and also operational costs.

(ii) Family Takaful

This is an investment programme6 to provide halah investment returns to the

participant as well as mutual financial aid. Individuals participate to save regularly
a sum of money to provide for dependants if they should die prematurely, or as a
contingency savings if they survive to maturity of the plan. The plan may be

Gift, donation
This is based on Mudarabah Principle. It is a partnership where one partner gives money to
another to invest in a commercial enterprise (the rabb-ul-mal), whilst the management and
work is the exclusive responsibility of the other (the mudarib).
taken for terms of ten, fifteen or twenty years. Participants must be between the
ages of eighteen and fifty years, and the plan must mature before the participant
reaches sixty years.

Sources of Law Affecting Takaful

An insurance policy remains valid if none of its aspects contravene the Shariah principles.
Hence, every element of an Islamic insurance policy should absolutely be based from the
Shariah. The sources of law affecting Takaful can be gained from the Holy Quran,
Traditions of the Prophet (s.a.w)7, Analogical sources8, as well as its Principles of Contract
(Billah M. M., 2001).

2.1 The Holy Quran

The Holy Quran and the Sunnah contemplate one community of faithful believers that
have, over time, dispersed around the globe (Fisher, 2008). The belief in one God is the
universal principles that offer harmony and unity to all humanity (Fisher, 2008). The Holy
Quran lays down rules of personal behavior, manners toward others and relations with
society in order to assure the believer a safe passage (Fisher, 2008).

There are indeed a number of Divine injunctions in the Holy Quran, which justify the
validity of an insurance contract (Billah M. M., 2001). The contract of insurance contains
the elements of mutual cooperation9 (Billah M. M., 2001). It is a binding promise, which
binds both the insurer and the insured based on the general principle of contract10 (Billah
M. M., 2001). It also contains the elements of alleviation of hardships and provision of
material security and assistance for those who face unexpected risk and peril, and
ensure them a comfortable life11 (Billah M. M., 2001).

Hence, the Holy Quran is the principle guidance to provide an instrumental justification
for the application of insurance contract, as the Holy Quran is a plain statement12 and
guidance for mankind in order for them to be successful in this world and in the hereafter
(Billah M. M., 2001).

2.2 The Sunnah

According to one hadith as quoted by Kettel (2008) in his book, one day the Prophet
(s.a.w) saw a Bedouin leaving a camel in the desert and he asked the Bedouin, “Why
don’t you tie down the camel?.” The Bedouin answered, “I put my trust in Allah.” The
Prophet then said, “Tie your camel first, then put your trust in Allah.”

Also known as Sunnah.
Analogical sources such as Qiyas, Istihsan and Ihtisab.
See Al-Quran, Surah al-Maidah, 5:2.
See Al-Quran, Surah al-Maidah, 5:1.
See Al-Quran, Surah al-Baqarah, 2:201.
See Al-Quran, Surah al-Imran, 3:138.
What the Prophet did was to encourage the Bedouin to reduce the risk of losing his
camel. Similarly, in many other actions of the Prophet, it is well documented that he took
steps to reduce risks (Kettell, 2008).

Another example was the Prophet’s actions during the Hijra13. Feeling danger, he hid in
a cave instead of going straight to Medina (Kettell, 2008). He commanded is
Companions to migrate to Medina by batches instead of in one large group. Again this
was to reduce risks. When he went to war, he put on his armour instead of wearing light
clothes (Kettell, 2008).

1.0Role of Takaful Operators/Agencies in Islamic Financial Institutions

The Ultimate Aim of the Takaful Agency Members14 is to seek the pleasure of Allah Most Exalt,
submit entirely to His Will and strive for the final abode in the Hereafter.

All Takaful Agents act as Businessman or Businesswoman. Therefore, as quoted from Al-
Qadarawi15 who said:

“Any merchant who remains within the bounds of honesty and fair dealing in such an
atmosphere is a fighter against his desires, meriting the status of a warrior in the cause of

Takaful Operators takes on the task of Recruiting, Training, and retaining the agencies. This is
by no means is an easy task (Yap, 2009). It is also mentioned by the author about the various
briefs of the Organizations and Functions of the Takaful Agency.

(a) Takaful Agency Manager 16

 Overall expansion of the Takaful agency’s business

 Plays a strategic role for profitability of his agency

 Overall responsibility to the development of his agency

 Markets and sells the Takaful plans

 Develops a huge customer and client base

 Services this client base

 Develops and build up specific markets

 Recruits train and motivate Takaful Agents

The migration of Muhammad s.a.w and his followers to Medina in 622AD.
The range starts from Agency Manager, Unit Manager, Specialist and Agents.
Sheikh Yusof Al-Qadarawi is a public intellectual and immense international influence.
This is also known as Group General Manager.
 Takes on a leadership role for the Industry

(b) Takaful Unit Manager17

 Markets and sells the Takaful plans

 Develops a huge customer and client base

 Services this client base

 Develops and build up specific market

 Recruits, train and motivate Takaful agents

 Takes on a leadership role for the Industry

(c) Takaful Specialist18

 Markets and sells the Takaful plans

 Develops a huge customer and client base

 Services this client base

 Specializes in certain Takaful markets

(d) Takaful Agent 19

 Markets and sells the Takaful plans

 Develops a huge customer and client base

 Services this client base

The actions, behaviors and attitude of the Takaful Agent also matters. The Agency Manager,
Unit Manager, Takaful Specialist and Takaful Agent together they form an organization. Each
has their special and unique task and contribution (Yap, 2009). They should work in unison
towards the economic success of both the agency and their respective family (Yap, 2009).

2.0 How insurance related to Takaful and Why Takaful is mimicking Insurance operations

Also known as Agency Manager.
Also known as Charted Takaful Underwriter.
Acts as Consultant.
Takaful is related to insurance in terms of the service given. However, the modus operandi is
the biggest difference between Takaful and insurance. Any form of insurance which has the
shariah-compliance element in it is deemed permissible.

Takaful is considered mimicking insurance, in my opinion, due to the fact that it is giving the
same service to the interested parties. To some, we can argue that Takaful industry is not truly
shariah-compliant yet, but to some it is already considered well enough. Whichever our
perceptions are, Takaful is done to provide a halal solution to those who are in dire needs to pay
for their medical claims and other related expenses which are supported by Takaful. To those
who thought of Takaful as just mimicking insurance operations, they might be right at certain
extend, however, in the nascent Islamic finance industry, we have to start from somewhere. And
starting can sometimes mean looking up at what we already had in the market.

3.0Issues in Takaful Industry

Takaful industry will experience much change20. Mentioned below are a number of strategic
issues and challenges that providers will contend with as the industry expands (Khan, 2010).

4.1 Standardization

The global Takaful industry, currently have different operational models, accounting
standards and regulatory regimes (Khan, 2010). Countries such as Bahrain, Malaysia and
Pakistan are currently the only markets to have issued specific Takaful laws or regulations.
However, in spite of the laudable efforts by AAOIFI21, the industry is still wanting in building a
set of global regulatory standards that will be binding on all operators, with certain
localizations (Khan, 2010).

4.2 Distribution Challenges

The Takaful industry is dominated by local operators. New entrants should create synergies
that can be used to leverage existing distribution channels, banc-Takaful and strategic
alliances across geographies. This will also enable the operators to increase premium
volumes to improve profitability which is a key factor in surviving the ‘start-up’ years (Khan,

As with all new product offerings, changes depends on several factors, both internal and
AAOIFI stands for Accounting and Auditing Organization for Islamic Finance Institutions
which is based in Manama, Bahrain.
4.3 Developing Innovative Products

Developing attractive and competitive products that meet diverse customer needs will be a
major challenge for producers (Khan, 2010). Though Takaful providers cater to a very
specific and presently unsatisfied market, they still need to create product offerings that are
as sophisticated and innovative as their conventional competitors (Khan, 2010). Their ability
to design products that exceed the standards presently set by conventional insurers will be
the ultimate test for Takaful as a product (Khan, 2010).

4.4 Improving Marketing and Branding Tactics

The present brand value of Takaful is relatively limited particularly in non-Islamic countries.
Analysts have suggested that Takaful has enormous potential for Islamic and non-Islamic
populations, offering an ‘ethical’22 insurance alternative (Khan, 2010). Experts also propose
that Takaful can potentially be a useful mechanism for poverty alleviation (Khan, 2010). The
low penetration of insurance in many Islamic countries where Takaful operators are
expected to be most successful indicates that Takaful operators have yet to make significant
progress towards this end (Khan, 2010).

4.5 Raising the Standards in Customer Service

As the industry grows and becomes more competitive, building customer service skills and
developing best practices will become increasingly important. At present, general customer
service standards are average among Takaful providers, relative to their conventional
counterparts (Khan, 2010).

4.0 Challenges in Takaful Industry

Some of the challenges in the Takaful industry are as mentioned below:

4.1 Shariah - Compliance

Shariah compliance of financial products is essential to ensure credibility of the products

and institutions (Khan, 2010). It is, at the end of the day, what differentiates conventional
from Islamic financial products (Khan, 2010).

We have already seen the statistics on the potential of Islamic Finance. The number of
Muslim investors is increasing (Khan, 2010). They are becoming more sophisticated and
will demand more from their bankers. Investors will not only look at investment
performance or Shariah compatibility alone (Khan, 2010). They will demand both
Shariah compliance and good returns.

Emphasize on the economy, ethics, morality, sociality, and religious dimensions, to
enhance equality and fairness for the good of society as a whole.
In fact, using the label ‘Islamic’ or ‘Shariah- compliant’ would suggest that the product is
already adhering to the principles of Shariah (Khan, 2010). Any violation of this rule
would mean a loss of confidence in the product, firm or even the system itself. Investors
will vote with their feet. Therefore, it is in the industry’s interest to ensure that the
Shariah supervision systems in the Islamic financial institutions are managed well (Khan,

However, ensuring effective Shariah compliance is not a straightforward matter23. There

are many issues that confront it (Khan, 2010). A lack of standardization may result in
problems such as increased transaction costs, lack of recognition of legal rights and
marketability problems across borders (Khan, 2010).

5.2 New Product Development

Aside from Shariah compliance, another factor that is crucial to the development of the
industry is the constant innovation and development of new products. Financial markets
are increasing in sophistication; the environment is constantly changing and competition
is increasing (Khan, 2010). Muslim investors need a range of products to meet their
desire for diversification of their investments, based on their unique individual needs.
There have been many talks about the need to attract the Middle Eastern investors to
this region (Khan, 2010). However, we have yet to see different asset classes of
investment being created to attract these investors. The ijarah sukuk that we issued five
years back is still the only available sukuk in Singapore. We hope to contribute further in
generating new products (Khan, 2010).

5.3 Current Improvements

Hence, there are some very important issues that face the Islamic Finance industry
(Khan, 2010). And two of the more crucial ones, as we have seen, are regarding Shariah
compliance and new product development. Nevertheless, it is heartening to note that
much effort is being made to address these challenges (Khan, 2010).

For example, institutions such as the Islamic Financial Services Board (IFSB) and the
Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) have
made great progress in developing standards, including on Shariah compliance. For
example, the Monetary Authority of Singapore is a full member of IFSB, and is taking
part in some of the standard setting projects which is a good start (Khan, 2010).

5.4 Developing Talents

But at the end of the day, in order to address these challenges and to achieve further
improvements, we cannot run away from the fact that we need talented people. Shariah

One of the more pertinent problems is the lack of standardization in addressing Shariah
issues may even impede the development of the industry.
scholars, in particular, have to play a greater role (Khan, 2010). Shariah Boards may
have to operate differently in order to facilitate the innovation process, without
compromising Islamic principles. They have to be involved in the new product
development process at the onset (Khan, 2010). They have to integrate Shariah
considerations early and fully in any development or strategy. Plus, they have to provide
constant supervision and work in close partnership with management to ensure
innovative yet shariah compliant products (Khan, 2010).

Furthermore, they have to understand customers’ needs, safeguard their interests and
represent them to the management of the organizations (Khan, 2010). In addition, they
have to develop Shariah compliance systems that adhere to the standards developed by
AAOIFI and IFSB24. And all of these procedures will have to be transparent in order to
avoid problems of information asymmetry and to gain the trust of potential investors.
Ultimately, both customers and Islamic financial institutions benefit. Investors will have a
range of products to choose from. In addition, institutions will gain greater credibility and
an increase in potential customers (Khan, 2010).

5.0 Critical success factors in marketing Takaful

Considering the realities of and constraints on the growth of Takaful, nine factors had been
identified as success factors which are namely:

5.1 Government’s support

Promotion of Takaful is necessary by the governments in respective countries. Without

the support of the government, regulatory authorities cannot play their dynamic role for
development of Takaful Governmental support is also necessary to protect
the policyholders who buy Takaful products because they feel that it is 100% Shariah
compliant25 (Mortuza Ali, 2010).

5.2 Conducive environment

Takaful is growing along with the growth of Islamic banking, Islamic capital market,
Islamic bonds and securities, and together with sound legal, regulatory and Shariah
frame work (Mortuza Ali, 2010). Takaful will continue to grow with the Islamic financial
system (Mortuza Ali, 2010). Regulatory authorities of respective countries need to frame
appropriate laws, rules and regulations for the day to day operation of Takaful operators.
Regulatory authorities of respective countries need to frame appropriate laws, rules and
regulations for the day to day operation of Takaful operators (Mortuza Ali, 2010).

Takaful being a new concept has to be brought under a prudent regulatory system
(Mortuza Ali, 2010). It appears that Islamic financial system has attracted many
scholars and professionals from East and West. This will grow further in the coming

IFSB stands for Islamic Finance Services Board.
Government must ensure that the Takaful system keeps its identity in line with Shariah,
otherwise policyholders will be deceived.
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decades, and Takaful will take its place in the Islamic financial map in a big way
(Mortuza Ali, 2010).

5.3 Acceptability to non-Muslim

An interesting development in Takaful is that it has attracted the non-Muslim community

also. Therefore, the market for Takaful is not limited to 20% of world’s population
(Mortuza Ali, 2010). The Takaful market will expand gradually throughout the world
because of its unique features of profit sharing, transparency and accountability to all the
stakeholders (Mortuza Ali, 2010).

5.4 Better value creation

Takaful will grow at a rapid pace because it can add more value to its customers by way
of profit sharing and quality management (Mortuza Ali, 2010).

5.5 Least expense

Management expense of Takaful operation must be kept to a minimum in order to make

it more attractive and beneficial for the customers (Mortuza Ali, 2010). As both the
marketing agents as well as the prospective customers’ level of morality will be on the
high side, it can be expected that false and/or exaggerated claims will be minimized26
(Mortuza Ali, 2010).

5.6 Risk Management

Takaful operators are supposed to manage the risks of their customers by the
mechanisms of risk transfer and risk distribution (Mortuza Ali, 2010). It is, therefore, an
important requirement that Takaful operators manage their risks involving every sphere
of operation viz marketing, underwriting, investment, internal control, personnel
management, asset management and such (Mortuza Ali, 2010).

6.7 Firm commitment

Last but not least, commitment towards the development of a Takaful system and
towards maintaining its growth rate is the responsibility of the members of the boards,
Shariah scholars and the management team (Mortuza Ali, 2010). It is necessary that all
the stakeholders believe that they are engaged in Takaful operations not because of
worldly gains, but for getting rewards from Almighty Allah for doing good deeds in this
world by following the principles of Shariah (Mortuza Ali, 2010).

5.7 Awareness

Risk consciousness is very low among the Muslims (Mortuza Ali, 2010). Takaful
operators need to create a deeper understanding and awareness among policy makers
Other ways of doing this is by targeting economies of scale and scope, articulating cost
strategy for customer acquisition, servicing and retention, and mprove loss ratios through
changed business mix and better claims management (Young, 2010).
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as well as among the general public. We shall have to make it very clear what role
Takaful can play to improve the socio economic well being of the Ummah27 (Mortuza Ali,
2010). We must realize that development of Takaful can contribute towards economic
prosperity in the context of economic growth (Mortuza Ali, 2010).

6.8 Trust and confidence

People’s trust and confidence in Takaful system is the primary determinant of soundness
and stability of the Takaful system. Therefore, Takaful operators must come up with
product innovation and ensure excellent customer service.

6.0 Conclusion

In as much as the Takaful system resolves around active participation by members of the
community, it is imperative that public awareness be enhanced. The evolution of the Takaful
industry will accelerate and be well marketed as Muslims and non-Muslims come to understand
the real benefits of Takaful and cooperative risk sharing. However, the future of Takaful will
largely depend on how the increasing potentials are being exploited by the Takaful operating
system, keeping in view the state of affairs in and economic needs of Islamic countries.
Therefore, it is vital that the Takaful operators be aware of the issues which are currently facing
the industry and steps to improve the industry, one step at a time, atleast.

Ummah means the public, the society as a whole.
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