T HE INCLUSION AGENDA Mutual Insurance and Takaful in Changing World Istanbul November12 and 13, 2012 Rodney Lester

I NSURANCE DEVELOPMENT IS CORRELATED WITH INCOME LEVEL

I NSURANCE SUPPORTS ECONOMIC GROWTH ‘Even controlling for the traditional variables believed to explain growth, we find that the exogenous components of banking and life insurance penetration are robustly predictive of increased productivity across our sample of 55 countries for the period. We also find evidence of synergy between banks and insurers, thus producing greater benefits jointly than indicated by the sum of their individual contributions.’ Source: Webb, I. et al, The effect of banking and insurance on the growth of capital and output, Georgia State University, 2002

H OWEVER INSURANCE IS LESS DEVELOPED I SLAMIC COUNTRIES Source: Feyen, E. et al, What drives the development of the insuraneve sector?, World Bank Working Paper, February, 2011

T HIS IS CONSISTENT WITH THE REGRESSION FINDINGS AFTER ALLOWING FOR INCOME AND STRUCTURAL VARIABLES

R ELIGION IS INTRINSIC TO EVERYDAY LIFE IN I SLAMIC C OUNTRIES – 20% W ORLD P OP.

H OWEVER NUMEROUS FACTORS NOW SUPPORT THE DEVELOPMENT OF T AKAFUL Demand Economic growth – greater wealth Reduced fiscal space of governments Break down of family support systems Increasing desire to fund education due to changing economic drivers Supply Slow emergence of acceptable standardized model? Government support of cooperative models in Islamic countries Interest in Takaful models in non-Islamic countries with large Muslim populations Development of Islamic Finance New distribution systems – e.g banktakaful

S OME M USLIM COUNTRIES HAVE LONG TERM FISCAL SPACE CHALLENGES

E&Y NOWCASTS / F ORECASTS SHOW CONTINUED RAPID GROWTH US$ MILLIONS Source: E&Y 2012 Takaful Report

S OME KEY CHALLENGES FOR T AKAFUL Pricing paradigm – how much allowance for risk in competitive markets? Treatment of surplus – allowing for growth and risk – who owns it? – c.f. estate in mutual insurers. Beneficiary options – who can benefit from an insurance policy? Retakaful and retrotakaful – how much capacity – how much flexibility to use conventional markets?

T HE W ORLD B ANK SEES T AKAFUL AS AN IMPORTANT DEVELOPMENT VECTOR Linking to development agenda – microinsurance, bancassurance, disaster funding, sectoral liberalization, optimal industry structure etc Dealing with issues arising from Financial Sector Assessments – linking to international standards Helping to support efforts at standardization of interpretation through convening power – one objective of the new book.

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