For takaful operators, staying competitive in a digital world will require far more than just direct sales channel or automated processes. It requires a rethinking of the fundamentals and principles of takaful, for which digital technology can be a catalyst. Takaful operators must rethink their sources of revenue, operational efficiency and talent strategy to reap the opportunities of digital disruptions. It is also important to rethink the business model and the role that takaful operators can play in a digital ecosystem that has transcended geographical boundaries. Digital disruptors such as virtual or peer-to-peer takaful provider that is tech-enabled might be able to overcome many pain points experienced by the industry in more efficient ways. The buzz right now in the financial industry is around digital banks. Nonetheless, this can swiftly turn to digital insurers or takaful operators. Such development could be the next phase that could further enhance the 3/5  BIS central bankers' speeches  quality and pricing of services delivered, while also penetrating new areas for the industry to achieve our protection goals. This development could provide the impetus for exponential growth in insurance and takaful penetration in the country. Thirdly, the industry must take greater responsibility to educate consumers and inculcate understanding about the importance of financial protection. Almost half of respondents in the 2018 Financial Capability and Inclusion Demand Side Survey cited lack of product understanding to be the key reason for not purchasing life insurance and family takaful.

The design of financial protection has to evolve and, for many underserved segments, financial protection has become even more pressing. Islamic finance and takaful should therefore embrace its transformative role, responding to these evolving needs, rather than merely reacting to past and existing demand. It is thus imperative for takaful industry to be agile and adapt to these changes. In my remarks today, I will outline three dimensions that offer significant opportunities for the transformative role of takaful: First, takaful can be a key enabler for the Muslim economy; Second, it can be a solution of choice for Malaysians; and Third, it can also be a game-changer in empowering financial resilience. 1/5  BIS central bankers' speeches  Takaful as a key enabler for the Muslim economy For hundreds of years, merchants and traders have relied on arrangements based on mutual assistance to protect each other against the perils of sea travels, damage to property and other forms of misfortunes. Marine protection schemes, similar to the schemes offered in Edward Lloyd’s coffee shop more than 330 years ago, can be traced back to the Islamic civilisation of the Ottoman Empire. One could argue that such protection arrangements were part of the ecosystem that made such empires the marine superpowers of their times. Fast forward to modern times, households and businesses continue to experience various risk events that could impact their lives, financial capabilities and assets. From nature-driven risks to man-made risks, these risks will directly impact those we protect and cover in increasingly significant ways.