Market Watch: Connecting with the UK Muslim community

When it comes to meeting the UK Muslim population's takaful requirements, the much-maligned banking sector is a good area for brokers to study in detail for guidance on how to approach it.

In 1998, HSBC formed HSBC Amanah, which began trading in the UK in July 2003. The bank estimates that there are two-and-a-half million Muslims living in the UK, around half of whom are under 18. To serve those Muslims who adhere to the Islamic law concerning not earning interest on investments, it offers a range of Sharia-compliant financial services to meet their needs, such as current accounts and home finance options.

The bank engaged in a two-track process, simultaneously ensuring that all products were compliant with UK and Sharia law through independent experts and Islamic financial scholars. Each board had to approve each product to make it fit for purpose. One of the first - and ongoing - challenges that HSBC Amanah faced was informing the community of the existence of its offering. Riaz Hassan, national sales manager at HSBC Amanah, explains: "Our research revealed we need to help and educate the community as to the understanding of Sharia-compliant banking."

The educational aspect and growing population means that there are ongoing opportunities. Although Hassan declines to give figures, he highlights double-digit percentage growth in accounts held in 2009. The company has no plans to enter insurance but, in theory, the areas that could come into play would be home, motor and life. Hassan stresses: "The challenge is to find suitable, cost-effective products. We are always looking at insurance and in the Middle East we are making great progress, though you cannot just transfer a product because the UK has its own legal requirements. We continually monitor it and would consider it again."

Product prevalence

One problem that has faced brokers has been the lack of products to offer clients. Vasilis Katsipis, general manager for analytics at rating agency AM Best, is an expert on takaful worldwide. He was part of the working group that produced the Islamic Financial Services Board's exposure draft standard on solvency requirements for takaful undertakings, which provides guidance on how to evaluate capital.

A potential side-effect of its work on greater transparency in the way numbers are reported could be an increase in working capital - and hence products - being made available, though takaful reinsurance is still some way off. Looking at the global situation for where such products could develop, Katsipis explains: "In personal lines, there's great potential because products are seen as more equitable by the population and there's an increase in cover in certain states becoming compulsory. Family has long-term potential, as well as probably the biggest, as it does not have great penetration. Some people may find takaful insurance more appealing than price but it will need to be competitive. The key will be equitable, fair treatment of policyholders."

His opinion is of particular interest in light of the findings of a BDO global report on Islamic finance. More than half the financial services executives surveyed thought that global Islamic finance as an industry would grow by up to 20% over the next three years. It also found that the UK was considered the third-most popular market for expansion by 2012 and that insurance is the second-most popular product as a potential source of revenue.

Kirstie Gordon, insurance specialist at BDO, also agrees that the issue is coming to the fore: "Insurers are recognising that there is a demand for Sharia-compliant insurance products in the UK. Large, household names such as Groupama and Hiscox are already underwriting takaful products and selling them though intermediaries such as Birmingham-based Muslim Insurance Services."

She adds: "We have seen some early teething problems, with smaller players in the market already closing to new business. However, with the successful growth of Islamic banking services over the past few years proving there is an appetite for Sharia-compliant financial services, takaful looks set to follow."

Early issues

An example of the teething problems Gordon mentions is the UK's first independent, fully Sharia-compliant takakful operator, Salaam Halal Insurance. The insurer launched in July 2008 offering car and home insurance but had to close to new business in October last year: it is currently in run-off. According to chief executive Bradley Brandon Cross: "If it hadn't been for the credit crunch, we would have been in good shape." He also cites the soft market as a reason for the insurer's decision: "Competitive rates in the motor insurance market are a concern for everyone in the industry. As a new company, it was difficult to gain critical mass and manage loss ratios."

Brandon Cross also confirms that the original business plan had included steps to open the business to brokers after an initial direct-only sales structure; he believes that opportunities remain in the market: "I think there is demand for Sharia-compliant insurance but there is a need for a lot more education and information. A lot of customers currently insured have not been able to buy Sharia-complaint insurance in the past, so community leaders are not fully informed."

Mike Langton, director of Muslim Insurance Services, believes that brokers will be able to provide these products to their clients in 2010. His company launched in November 2008, having referred to 20 Islamic scholars to assess the religious requirements properly. Langton explains: "We asked how we could better address issues Muslims have and at the same time adapt western insurance models to best marry the two. Issues were overcome with good will on both sides. Insurers were flexible and I would give them a big round of applause. The proof is that we created what was needed."

MIS set up takaful funds within Groupama, Ecclesiastical and Hiscox, where money movements and claims payments are monitored and kept within the rules and regulations of the Sharia board. Langton adds: "Chartis has agreed in principle to sign up and several more are well advanced."

MIS concentrates on home and travel insurance and also has a range of commercial lines that includes business, professional indemnity and landlord insurance products. Currently, one provider offers each product exclusively with sales completed by phone; the current focus is on widening the offering and also which firms can deliver it.

The future

Langton says: "The next step in 2010 is to make it available to other brokers. We are awaiting Financial Services Authority registration and are currently an appointed representative of Jardine Lloyd Thompson. The intention is to have a separate division that will just deal with brokers."

MIS does not offer motor as yet but is not ruling out doing so in the future. Despite the failure of Salaam Halal Insurance and the insurer not making it to the broker channel stage of its plans, Bradley Brandon Cross is sure that the insurance industry is "flexible and speedy" enough to meet the needs of Muslim communities demanding takaful insurance in the UK. Langton is similarly convinced and is quick to praise JLT, saying of it "we couldn't have done it without its help and vision".

While there is still much work to be done, it is reassuring to note that the insurance industry is striving to meet the needs of the Muslim community and that brokers across the country may well soon be able to offer takaful to their clients.