Bridging the cultural divide

The term 'ethnic minority' incorporates ethnic groups living in the UK including Bangladeshis, Chinese, Indians, Sri Lankans and Pakistanis, to name a few.

The UK 2001 Census shows that, four years ago, ethnic minorities constituted 7.9% of the UK's population, or 4.6 million people. The three areas in the country with the greatest ethnic minority populations are: London with 29%; the West Midlands at 11%; and the East Midlands with 6.5%. In fact, 70% of the UK's ethnic minority population live in the West Midlands, West Yorkshire, Greater Manchester, East Midlands and London.

Subsequently, there are a large number of ethnic minority businesses, with Barclays reporting that black and minority ethnic business start-ups have reached record levels. However, on the other side of the coin, the Ethnic Minority Employment Task Force found that members of ethnic minority communities are more likely to live in poverty.

Four years after the census, the number of individuals from ethnic minorities has risen. For example, Home Office statistics show that, between May 2004 and March 2005, 176,000 Eastern Europeans have registered to work in the UK after 10 countries, including Poland, Malta, Estonia and Hungary, joined the EU on 1 May 2004. As a result, nationals of these countries gained the right to move freely across all Member States.

Meanwhile, immigration was a hot topic in this year's election, with the Conservatives requesting a limit on the annual number of immigrants, while Charles Kennedy, leader of the Liberal Democrats, said he wanted his party to be the 'natural home' for ethnic minorities.

However, whatever the politics and statistics, are brokers seeking to differentiate themselves by tailoring the insurance approach for ethnic communities and create a potential niche?

There is evidence that the 'language barrier' is causing problems for the ethnic minority communities. Phil Morgan, managing director at claims consultants Morgan Clark, says: "The proportion of Asians coming to us with problems is far greater than the proportion of Asians in the country." He continues: "There is a stigma in the industry regarding ethnic minorities, and they get a raw deal. We find our clients often struggle with the small print and fail to understand the whole process and what they have bought." Offering a potential solution to the problem, he says: "I believe there should be more documentation in different languages.

Morgan Clark claims to have access to interpreters covering just about every language in the world and suppliers that are experienced in dealing with claims for ethnic minorities such as jewellers specialising in the evaluation and supply of Asian jewellery.

Morgan is suggesting that policies in different languages could benefit hundreds of thousands of policyholders. Insurance can be complicated and, if English is not the reader's first language, which can be a problem especially for elder members of the ethnic minority communities, then there is potential for confusion.

Policies written in Braille for the blind are one example of how the industry already helps other minority groups.

A 1999 Office of Fair Trading report, entitled Qualitative Research into Ethnic Minorities and Financial Services, provides an insight into the problems insurance companies may have. This, the most recent government research into this area, found: "A majority of Asian people feel that the language they have acquired is too colloquial and not formal enough to deal with banks and insurance companies. Even where spoken English may be good, the reading of English can be poor or non-existent. This creates problems in understanding the 'small print' of financial products."

Insurance is often complicated even for native speakers, and the language barrier naturally makes insurance even more prohibitive. However, despite the relatively simple task of sourcing reputable translators to tailor and therefore target these groups, the insurance industry has largely passed up the opportunity.

Spokespersons from Norwich Union and Royal & SunAlliance confirmed that the insurers do not provide translations of policy wordings.

There are, however, practical ways for brokers to tap into the ethnic market, as Peter Staddon, head of technical services at the British Insurance Brokers' Association, explains: "There are no policies for ethnic minorities, as far as I know. What brokers can do is take a product and tailor it for a local market. For example, Coyle Hamilton in Essex once targeted Cantonese-speaking Chinese owners of fish-and-chip shops."

He explains the success of the campaign: "At the end of the day, people feel more comfortable discussing things in their own language."

Ross James, the head of inclusivity at the Central Office of Information, advises that cultural and religious beliefs need to be taken into account when producing leaflets aimed at ethnic minorities. He says: "It is vital if you are specifically targeting ethnic minorities to consider cultural barriers and opportunities."

There are also brokers, such as Intelligent Solutions in London, that target Muslim groups and advertise in the Directory of Islamic Insurance. Intelligent Solutions' managing director, Fozlul Hussain, concurs with James: "It is very much the customers' personal ethical and religious requirements that are important."

The Muslim factor

Some specialist policies are available for Muslims and include a specialist travel cover called Pilgrim Protect, arranged by Travellers Protection Services, for those undertaking the Hajj and Umrah pilgrimages in Saudi Arabia. One of the individualisms of the scheme is that it does not include death cover, which is against the Islamic Shariah - the divine code of Muslim conduct.

Muslims comprise around two million of the UK population and their finances are often guided by different interpretations of the Shariah.

According to Sabbir Patel, vice-president of development at the International Cooperative and Mutual Insurance Federation, there are three primary reasons why insurance can be contradictory to Muslim beliefs: gharar - uncertainty or trading in risk; maisir - gambling, there are no guarantees your premium will be returned, and riba - fixed interest.

Patel says: "Basically, the ideology is that a Muslim should not take it (insurance), unless statutorily obliged to do so." However, a system suited for the Muslim community, known as Takaful, has emerged. Takaful is an Arabic word meaning "guaranteeing each other" and is based on shared responsibility and joint indemnity, according to Patel.

There are a number of models of Takaful: Al-Mudharabah involves a surplus shared between policyholders and Takaful shareholders. Ta'awuni is a co-operative mutual fund where the policyholder is entitled to 100% of the surplus. The first Islamic insurance company was set up on this basis in Sudan in 1979. There is also Al Wakala, which is a risk-sharing model where the Takaful company may charge shareholders a management fee and a fee based on performance. Finally, there is a not-for-profit model based on social government programmes and charities.

Although Takaful has not yet been established in the UK or other large markets such as France, it is established in countries such as Malaysia, Saudi Arabia and Iran.

Patel cites a number of reasons why Takaful insurance has not been taken up by the industry in the UK. He says: "There are issues of legislation because of the restricted terms of investment." He continues: "There needs to be an appropriate substitute for fixed-interest requirement, something that the upcoming Islamic bond markets could resolve. High capital requirements and the need for technical expertise are other prohibitive factors. The geographical spread of the Muslim population requires an established infrastructure to be in place for distribution and marketing and, while there is growing awareness and acceptance on Islamic finance, knowledge of Takaful is still not widespread."

However, when a country has no Takaful company, Patel says, "Muslims can purchase insurance from co-operative and mutual companies such as Liverpool Victoria, which has no shareholders to take a share of the profits."

However, attitudes differ. Shaukat Khan, managing director of Khan Insurance Services in Rochdale, sees nothing wrong with standard insurance contracts for Muslims through insurance companies, because "it is the law of the land". His company offers commercial and personal lines, and has a 65% ethnic minority client base. He says: "At the end of the day, a contract is a contract. We translate key aspects of the policies for our customers and make sure they understand the content, but we have few problems over ethical considerations when it comes to finding the right policy. People need cover and need to be protected."

Anila Preston, partner of IBB Solicitors, is keen to tap into the UK ethnic market, and plans to start offering direct insurance approved by a Shariah board from next year. She wants to launch a completely new company offering motor, travel and property insurance. The insurance company will be based in Gibraltar and be able to write business anywhere in Europe.

She says: "Although the initial policy may be slightly more expensive than ordinary insurance, each policyholder will be a shareholder, with some profits being returned to the policyholders." The company would be structured completely differently to ordinary insurance companies, for example, investors would not be able to charge interest and every investment would need to be approved by a Shariah board. The compromise would be to fit an interpretation of the Koran within existing UK law. One of the ways banks can do this is by beginning to develop Sukuks - bonds that are asset-backed and are acceptable Islamic structures for raising finance.

Market potential

Preston says insurance policies will be translated into at least three languages initially and will market the insurance to the ethnic communities via, for example, Sunrise Radio, though the insurance would be inclusive for people of all backgrounds. She says she would look to recruit brokers working in areas such as Birmingham, Ealing, Southall and Luton.

Hinting at a potentially lucrative market, she comments: "In some areas, 90% of minicab drivers are from Muslim backgrounds."

Preston is in discussions with underwriter Creechurch, which discussed the situation with Lloyd's at the end of last year. Creechurch's chief executive officer, Bruce Graham, says: "Lloyd's has been looking at the Takaful and Retakaful markets too. It is a convenient platform to form Takaful products because there are separate entities within Lloyd's." Also, a central fund protects everyone and firms can comply without changing too much." He says that Creechurch will initially target the Middle Eastern market to become established, especially in reinsurance, because the infrastructure is smaller. Graham says: "After we become comfortable in the Middle Eastern market, phase two will be the UK." Although they have already begun raising capital, Creechurch has not finalised details of the plan.

Dr Iqbal Afaria, a financial affairs consultant at The Muslim Council of Britain, claims a major high-street bank will launch a Takaful product this month, offering buildings and contents insurance. He says: "There are many Muslims who take the minimum insurance, and this Shariah board-approved product will hopefully encourage more Muslims to take out more."

Takaful for insurance appears to be coming to the UK, and there will be many insurers, reinsurers and brokers watching how the market develops. Meanwhile, Khan is nonplussed by Takaful and will continue to sell ordinary products using his fluent Urdu and Punjabi to good effect.

UK SOCIAL AND ETHNIC DEMOGRAPHIC IN 2001

Total UK population: 58,789,507

White: 54,153,879

Indian: 1,053,424

Pakistani: 747,273

Mixed race: 677,111

Black Caribbean: 565,873

Black African: 485,284

Bangladeshi: 283,037

Chinese: 247,387

Other Asian: 246,651

Black other: 97,560

Other: 230,628

Source: UK 2001 Census.