Lloyd’s of London, the world’s biggest insurance market, plans to offer Islamic insurance as part of an expansion in emerging economies where sales growth may outpace that of the US, chairperson Peter Levene said.
The firm “is looking at how we get in” to Islamic insurance, known as Takaful, Levene said in an interview on Wednesday. West Asia “makes up less than 1% of the world’s insurance market, and that’s an interesting area to explore”.
Financial products that comply with Islamic law had attracted more than $250 billion (Rs9.83 trillion) globally, growing 24% annually over five years, Malayan Banking Bhd had said in December.
The industry, born in the 1970s after a 12-fold jump in oil prices, is expanding in retail banking, debt issuance and insurance with record high crude enriching Islamic nations. Premiums for Takaful were growing about 40% per annum, while the global average for growth in 2005 was 2.5%, global rating agency Standard and Poor’s had said in report in April.
Based on the Quranic principle of mutual assistance in which members are insurers as well as the insured, Takaful is surging in popularity as record oil earnings fuel economic growth in the Gulf states.
West Asia, China and Brazil offer more opportunities for growth than the US, Lloyd’s largest market, where commercial insurance prices are falling, Levene said.
Lloyd’s, the 320-year-old insurance market, would follow insurers and reinsurers, including American International Group Inc. (AIG), Allianz SE and Swiss Reinsurance Co. that started selling Takaful.
New York-based AIG, the world’s largest insurer by assets, opened an Islamic unit in Bahrain in 2006 to target a potential regional market of 300 million customers.
Allianz, based in Munich, also started a Bahrain unit to sell Islamic life insurance, known as family Takaful.
“There’s enormous potential for Takaful as uninsured markets become insured as awareness of Islamic financial products grows,” Charles Bouloux, AIG’s president for the Middle East, Mediterranean and South Asia, said in an interview in Dubai. “It’s not just in the Middle East and Asia either. We see potential in the US, France and the UK.”
The global market for Takaful may expand fivefold to $14 billion by 2015 led by demand in West Asia and Asia, according to an HSBC Holdings Plc. forecast in 2006.
Many Muslims reject conventional insurance because Muslim scholars say it breaks Islamic Shariah law’s proscriptions against betting on future events and interest payments.
In Brazil, Levene credited the government for limiting capital requirements for foreign insurers after a lobbying effort from the industry against the restrictions.
“We’re going to become a lot more involved in Brazil,” he said. “Certainly in reinsurance and perhaps in direct insurance.” Reinsurance is coverage for insurers.
Levene is also seeking a relaxation of US rules requiring that reinsurers from other countries set aside funds equal to 100% of their potential claims as collateral.
US reinsurers have no such requirement, and the National Association of Insurance Commissioners (NAIC), which represents state regulators, has said it wants to review the disparity. “We’ve been talking to them for years and years,” Levene said. “It’s impossible to deal with the NAIC.”
Will McSheehy in Dubai contributed to this story.