muhammad bin ibrahim : takaful industry at crossroads - a critical examination remarks by mr muhammad bin ibrahim, governor of the central bank of malaysia ( bank negara malaysia ), at the takaful annual dinner and awards 2018 " takaful industry at crossroads : a critical examination ", kuala lumpur, 23 march 2018. * * * just last year, i addressed the insurance industry. the day after, the newspaper headlines screamed “ insurance models broken ”. and so, i was more than a little surprised to receive an invitation to speak. i could not resist it, and so i accepted. this evening, i promise to be no less critical of the takaful industry. but take this well, as the path to success begins with a critical examination of where we are today. we need to work as a collective. and also bear in mind that the takaful ’ s industry success is also our success. let us start by reviewing the industry ’ s progress. indeed, it has come a long way since its birth over thirty years ago. its 1 % market share in 1990 is now around 15 %. net contributions have grown 9 % annually since 2010. these are achievements that we all should be proud of. however, before we celebrate, let us consider three issues. first, can the industry sustain the growth momentum as we move into the 21st century world of technology and innovation. we have set ourselves an objective but we are far away from meeting the target. the objective of 25 % family takaful penetration by 2020 is admittedly, ambitious but achievable. however, at the rate it is growing, we will only reach 16 % in 2020, from the 14. 8 % today. this would be even lower if we were to correct for double counting of policies. clearly, the data proves that takaful is still far below its full potential, and is nowhere near where it should be. second, individual takaful operators have not reached optimal size. takaful operators are dwarfed by their conventional counterparts. without sufficient scale, takaful operators are hampered in making meaningful inroads against their larger competitors. this is not just about competition within the takaful and insurance industry, but also of technology. technology is reshaping the landscape of finance and lowering the barriers to entry from adjacent industries. takaful operators must shape up, or risk being marginalised, or worse, made irrelevant. third, the value proposition of takaf

greater retakaful capacity. given the absence of such retakaful operators, alternative arrangements for the industry to come together to pool their capacity, expertise and business need to be seriously explored. we already have the essential ingredients – the presence of the world ’ s largest global players in our takaful market, deep shariah knowledge within our domestic takaful and retakaful companies, and an entire islamic finance ecosystem that can be tapped into to really push the frontiers in 2 / 6 bis central bankers'speeches building retakaful capacity. we just need companies that are willing to lead the way. building this will take time, resources and a long term perspective, but this may be a small price to pay to build scale, generate critical mass and position takaful as a credible solution for large and specialised risks. there is also a big opportunity in halal trade facilitation, especially in serving smes. the global halal industry is valued at around usd2 trillion. the takaful industry however, has to be more committed and visible in serving local and international halal businesses. after all, takaful has its roots in the nusantara, when muslim merchants who plied their trade in the far east centuries ago were protected by early forms of takaful. this is why the takaful industry must join the banking industry in participating at the upcoming malaysia international halal showcase. participation will indicate intent, non - participation reflects poorly on the takaful industry, showing the lack of commitment or ability to spot opportunities, or maybe even both. this certainly has to be addressed if the industry is to make any meaningful progress, this sort of things matter. second, the takaful industry must conduct itself in a way that alleviates, not add, to the hardship of customers. i would make this same remark to insurers and takaful operators alike, but with its very essence of kafal emphasising mutual help and assistance, takaful must do more. our expectation is for the industry to consistently deliver best - in - class and superior customer experience. it makes perfect business sense for positive customer experience to be at the heart of the industry ’ s strategy. this is true for any business, but even more important for a product that most people do not normally seek out to buy. mckinsey & co. estimates that globally, insurers that consistently offer best - in - class customer experience produce up to four times