Insurance penetration and Takaful policy model
The nation’s primary regulator, the National Insurance Commission (NAICOM), in a bid to deepen insurance penetration adopted various strategies including issuance of licenses for the establishment of Takaful (Islamic) insurance model. EDET UDOH writes on the activities of Takaful insurance in Nigeria.
The Nigerian insurance industry is still evolving, trying to catch up with its contemporaries in the developed and other developing climes. The industry’s primary regulator, the National Insurance Commission (NAICOM) the operators and other regulatory agencies and intermediaries are working assiduously in raising the standard of insurance offering in the country.
Analysts believe that although the Nigerian insurance industry is still in its embryonic stage, opportunities abound, which according to them, makes it an investment haven for prospective investors.
Insurance and economic growth
Indeed, the desire of the industry stakeholders including the operators, policyholders and investors is to see the industry take its rightful place in the economic scheme of things especially in making significant impact in the nation’s economy. With the level of commitment and cooperation showed by operators, regulator and other stakeholders in ensuring the growth of the industry as demonstrated in the ongoing recapitalization exercise in the industry, indicates that the industry is on the right track to its glorious destination.
Interestingly, as the industry is evolving, it is also applying various ways to bring insurance to the door steps of all Nigerians in order to make them come to term with inherent benefit and advantage of insurance not only as risk mitigating mechanism but as tool for wealth creation and poverty alleviation. To this end, the industry is applying various strategies as vehicles to drive penetration and insurance acceptance in Nigeria. One of such ways is the Takaful insurance model which this article will discuss.
Takaful Insurance explained
Takaful Insurance, according to the Institute of Islamic Banking and Insurance (IIBI), is Islamic insurance, a form of insurance based on principles of mutuality and cooperation, encompassing the elements of shared responsibility, joint indemnity, common interest and solidarity.
It is a type of insurance system devised to comply with the sharia laws, in which money is pooled and invested.
Whereas in conventional insurance, the basis of the contract is not mutual help where each of the policy holders contributes money to help one another when they face difficulties, rather the insured transfers their risks onto the insurer, who in return transfers the same risks onto the reinsurance operators.
Takaful and conventional insurance companies share the same objective of providing protection to policyholders, their loved ones and valuable possessions. The main difference between the conventional and Takaful is that the former is a risk-transfer model whereas the later is a risk-sharing model.
Brief history of Takaful insurance in Nigeria
Historically, African Alliance insurance, the country’s oldest life insurance company in 2005, first introduced Takaful to Nigerian, offering family takaful, a product similar to whole life insurance in that it contains both a protection and a saving component. Thereafter, Niger Insurance came into Takaful insurance market and introduced Niger Mutual Halal Plus, a product containing a Shariah-compliant saving and investment plan.
Cornerstone insurance, a traditional insurer then introduced Halal Takaful Nigeria into the market. By 2013, Cornerstone was the first licensed composite operator in Nigeria, offering traditional as well as family and general takaful products.
In 2013, NAICOM issued the first guidelines to regulate the operation of takaful insurance in Nigeria. The guideline which is structured into eight sections was issued in pursuant to Section 7 of the NAICOM Act 1997 to encourage takaful companies with strong Shariah and corporate governance.
Between 2016 and today, NAICOM has granted licences to a total of four full fledge Takaful insurance companies, namely: Noor Takaful Insurance Limited, Jaiz Takaful Insurance Plc, Cornerstone Takaful Insurance Company Limited and Salam Takaful Insurance Company Limited. Three out of the four have started operations and are making significant impact in this market.
Noor Takaful Insurance Limited
In demonstration of its dominance in this market, Noor Takaful Insurance Limited in two consecutive years, 2018 and 2019 has declared surplus for its policyholders who did not make any claim during the period under review.
The company in 2018 declared a total of N12 million surplus while in 2019, a total of N15 million was distributed as surplus to participants.
Speaking during the surplus distribution event held in Lagos recently, the Chairman of the company, Ambassador Shuaibu Ahmed noted that the surplus extended to participants demonstrates the commitment of the company to encouraging Nigerians to be part of Takaful insurance market as well as promote financial inclusion in the country.
According to Ahmed, this surplus distribution would go a long way to further deepen penetration of insurance in the Nigerian market as Nigerians would now be more willing to subscribe to insurance given the fact that this segment of the market is considered ethical and rewarding.
“No doubt, this idea of giving something back to policyholders would naturally drive interest for insurance as Nigerians would now be less skeptical about getting involved. Surplus payment is a further proof that insurance can be done fairly and ethically”, he said.
He noted that the surplus offering was designed to allow policyholders to enjoy some benefits especially when claims have not been made throughout the year declaring that no such insurance package offers such benefit.
Surplus distribution as an advantage for Takaful insurance
In his remarks, Acting Managing Director of the company, Aminu Tukur stated that the distribution of surplus to policyholders has continued to serve as a big pull for the Takaful insurance market with interested participants now increasing on a daily basis.
“The surplus payment to policyholders stems from our Win-Win insurance model and this has served as a big pull for us at Takaful as we keep recording increase in the numbers of interested participants on a daily basis”, Tukur said.
Tukur further stressed that policyholders would continue to reap the benefits of surplus payment annually, provided that there are no claims to take all the money in the risk fund.
While urging Nigerians to take advantage of the opportunity, he described Takaful as a cover that could be explored by interested individuals or organisations in different sectors of the economy as it guarantees insurance against losses and other attendant risks.
Speaking further on some of the products as well as means devised by the company to change the narrative in the industry, Head, Business Development & Sales, Noor Takaful, Mr. Rilwan Sunmonu stated that it has become imperative to dismiss the notion that its products are strictly for Muslims adding that non-Muslims can also access it.
Jaiz Takaful insurance Plc
In the same vein, Jaiz Takaful insurance Plc, in 2019 announced increased in its gross contribution written from over N408 million in 2018 to over N753 million in 2019 or 85%. This, according to the management, is primarily due to the increased addition of new policyholders and over 80% retention of the old participants in the pool for the current year. This also result in 115% increase in net underwriting income and 85% increase in investment income for the year.
The company’s asset as at December 31, 2019, according to the Managing Director/CEO, Ibrahim Usman Shehu, rose to N413.9 million or 69%, “this is primarily due to increases in cash and cash equivalent, Retakaful Asset, Trade Receivable and Differed Acquisition Cost. Though we have a reduction in the values of intangible assets and property, plant, and equipment (PPE) and other receivable and prepayment, intangible assets and PPE are partially offset by reductions in amortization and depreciation respectively charged for the year.”
“The total liabilities increased by 176% to N511.4 million primarily due to increases in policyholders’ reserves partially offset by decreased in separate account liabilities.:
In 2019, policyholders’ reserves (Takaful contract Liabilities and Investment contract Liabilities) increased by 176% to N455.2 million which the management said was due to normal business growth and expansion.
“The trade payable in 2019, according to the company, increased to N492 million from N327 million recorded in 2018 as a result of business growth and expansion while provision and other payables increased by 187% to N39.1 million in 2019 financial year,” he added.
Salam Takaful Insurance
Salam Takaful Insurance Company Limited is another Takaful insurance Company in Nigeria. It was incorporated on 20th June 2016 to operate both Family and General Takaful Insurance as well as retail Takaful line of business with wide range of products. Its distribution channel comprise highly knowledgeable and trained intermediaries.
Salam Takaful headquarters is in Kano State with a branch office in Abuja and will soon have other offices in major urban areas in Nigeria as part of its strategic development.
Managing Director/CEO of the company, Mr. Abdul Kasim, said Salam Takaful offers selected Family (Life) Takaful and General (Non-Life) Takaful including retail takaful products that are appropriate and suitable for the market and country needs.
Cornerstone Insurance Takaful Insurance
Meanwhile. the chairman of Cornerstone Insurance white highlighting the company’s expected sources of revenue in the years ahead, at the 2019 Annual General Meeting (AGM), said the group expects increased contribution to the group’s revenue and profitability from its Takaful products.
He hinted that during the year the company received an approval in principle from NAICOM to start a Composite Takaful insurance business, adding that Cornerstone Insurance Takaful Insurance Company Limited will thus be a subsidiary focused on selling both family and general Takaful products in Nigeria, even as he disclosed that hitherto Takaful operations in Cornerstone have been done via a special window permitted by the regulator, NAICOM.