FILE PHOTO: The Lloyd's of London building is lit by winter sun in the City of London financial district in London, Britain, February 1, 2018. REUTERS/Simon Dawson/File Photo
*This article has been updated to include an additional quote from Dave Matcham in Para 5
DUBAI - London’s draft standards for transaction of Islamic commercial insurance are seeking Shariah scholars’ approval this year for roll-out next year, the Islamic Insurance Association of London (IIAL) told Salaam Gateway.
The industry body, which counts Lloyd’s of London as a founding member, has sought Shariah and legal opinion for the standards framework it has developed with London market associations.
The standards are not enforceable but IIAL wants them to be the “best practice” for London’s insurance industry, executive committee member Dave Matcham told Salaam Gateway on the sidelines of a takaful industry event in Dubai on Monday.
“We were advised by the Islamic [finance] community that we need some kind of standard to base our negotiations,” said Matcham, who is also chief executive of the International Underwriting Association of London.
“It’s something the London market does in the conventional space as well, where we would develop model products, model wordings … and they become the basis for negotiation for clients and insurers,” added Matcham.
BREXIT AS IMPETUS FOR GROWTH
The planned roll-out of IIAL’s takaful standards will more or less coincide with the UK’s departure from the European Union on March 29 next year.
As part of UK’s post-EU trade and business positions, the British government has set Islamic insurance “high on its agenda”, Jon Guy, IIAL secretary-general told Salaam Gateway.
Matcham confirmed that he will be a member of a new task force that is being formed for the insurance industry to work with the government on new business opportunities post-Brexit.
“We’ve suggested that Shariah-compliant products should be one of the things that [the task force] pursues as a business opportunity,” said Matcham.
The UK’s insurance sector would need to maintain a spread of business, said Matcham, particularly as most of their EU business will move to subsidiaries in the single market.
“On that basis, to my mind, there’s no reason to suggest that London will not grow its takaful offering after Brexit.
“Whether Brexit is the pivotal moment to cause this may be coincidental because [growth] is happening anyway. But perhaps it will add an impetus to it because companies may need to income substitute their operations in London.”
There are up to twelve insurers offering some form of takaful in the UK, according to Matcham.
IIAL’s takaful standards could lead to what Matcham describes as “a positive determination” for insurers to take on more takaful in the UK market, which holds only “under 5 million British pounds” in premiums for both Shariah-compliant commercial and personal lines of business, according to IIAL estimates.
The UK insurance sector has had a precedence for a standard to be developed and adopted by the industry. “I don’t like to use the word ‘mandate’ as such but we have used it before in London,” said Matcham citing ‘contract certainty’ as an example. The Contract Certainty Codes of Practice applies to general insurance contracts. It was requested of the insurance industry by the Financial Services Authority in the early 2000s to meet a certain level of standard to address what the FSA called the “deal now, detail later” industry practice.
“[A ‘mandate’] gives that nudge and then you can almost withdraw it because it’s normal, it’s ‘business as usual’ by then. That’s certainly the case with ‘contract certainty’,” said Matcham.
The UK’s takaful sector is woefully small compared to London’s insurance business. The capital city’s gross premium income is an estimated 56 billion pounds ($79.3 billion), which is the aggregate of two main segments.
Lloyd’s of London reported gross written premiums of 33.6 billion pounds in 2017. As an insurance market, Lloyd’s includes more than 50 insurance companies, over 200 registered brokers and over 4,000 local coverholders globally, according to the company’s website.
Overall premium total for the London company market, which excludes Lloyd’s, was 22.725 billion pounds in 2016, according to latest available data from the International Underwriting Association of London. This includes 6.691 billion pounds written in other locations but overseen by London operations.
Takaful, according to Matcham, is the “missing link” in the UK’s Islamic finance industry that is dominated by five licensed standalone Shariah-compliant banks—only one of which is retail-focused—and around twenty others that offer Islamic financial products and services.
Financial lobby group TheCityUK estimates the banks’ net assets as more than $5 billion in 2016.
“One of the key issues is that we need to educate to raise awareness [of takaful] and that comes from both inside and outside the industry,” said Guy.
In a 2016 survey conducted by IIAL, which was formed earlier in the same year to support the use of Islamic insurance in UK and promote the industry abroad, the top three reasons respondents said would stop them from buying takaful were price, the broker or intermediary not offering the option, and available capacity.
The survey was conducted among 500 Islamic insurance, reinsurance and risk experts in London as well as key Islamic jurisdictions Indonesia, Labuan, Malaysia, Pakistan, Syria and United Arab Emirates.
“There are a number of misnomers around takaful, particularly for the commercial side, that it’s more expensive and very complex,” said Guy, who said that these “couldn’t be further from the truth”.
“We need to stress to the client that the Shariah solution is available. Secondly, we need, internally in the insurance market, to actually get that message across.”
On the retail front, UK has had a chequered past with takaful.
Muslim Insurance Services, which provided personal and commercial products, was incorporated in 2008 and dissolved in 2011, and Salaam Halal Insurance that focused on car insurance, wound up in 2010 after only two years in the market.
Testing the market again, in December 2017, Green Dome Financial Services launched a new home and home contents takaful provider, InsureHalal, using the fully digital Now4Cover platform. Now4Cover is a managing general agent (MGA), which is a wholesale intermediary that can offer specialty types of insurance.
In January, Green Dome’s CEO Faizal Karbani told Salaam Gateway the first phase of InsureHalal’s work post-launch involves awareness-building accompanied by education.
According to Karbani, Islamic insurance “as a concept is relatively new for a lot of people” and InsureHalal would canvas as many Muslims across the country as possible as part of its marketing efforts.
IIAL’s secretary-general Guy points to a link to the retail sector that may support the work of providers such as InsureHalal.
“The key issue will be – once we get the capacity, once the companies and the syndicates and Lloyd’s, have the facilities to do [takaful], they are going to look at ways in which they can utilize that capacity,” said Guy.
“What we may well see is a number of MGAs that will target UK retail takaful because they will have the ability to access Shariah-compliant capital. Once the syndicates have gone through the regulatory and administrative setup to allow them to offer it, the moment they do that, they will be very keen at looking at how they can deploy it.”
($1 = 0.7060 British pounds)
(Reporting by Emmy Abdul Alim; Editing by Seban Scaria firstname.lastname@example.org)
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