Insurers race for growing Islamic market

Gulf African Bank chief executive officer, Najmul Hassan during the launch of a Sharia compliant mortgage product. Photo/FREDRICK ONYANGO
Gulf African Bank chief executive officer, Najmul Hassan during the launch of a Sharia compliant mortgage product. Photo/FREDRICK ONYANGO 

Insurance companies are racing to launch sharia-compliant products to tap Kenya’s growing Muslim middle class.

APA Insurance, CIC Insurance, Cannon Assurance—which collectively control about 15 per cent of the Kenyan market—have announced plans to roll out Islamic insurance products or takaful.

Low uptake

They are seeking to deepen penetration in a market where conventional insurance has suffered from consumer apathy and ignorance, with uptake remaining at below three per cent over the decade.

Morgan Stanley, a global financial services firm, says in a research note that takaful premiums in Kenya could potentially reach Sh20 billion in 2014, or 31 per cent of total insurance premiums.

This is the market that the local insurance companies are scrambling to capture as the two Islamic banks— Gulf African and First Community—announced plans to open insurance subsidiaries within the next six months.

“Muslims have for long been excluded from financial services, and the sharia compliant covers we are creating should help improve uptake ,” said Mr Nelson Kuria, the managing director of CIC Insurance.

“There is a huge opportunity in Islamic Insurance and the covers we will be launching include general, motor and property covers.”

Under takaful, people seeking insurance cover will pay premiums to a collective fund from which payments will be made to members who suffer from the risks covered.

But unlike conventional insurance practice, any remaining cash after all payments have been made in the financial year is paid out to members as profit.

The institutions managing the fund earn fees for their services.

CIC Insurance has invested Sh120 million to help create a subsidiary, Takaful Insurance of Africa, that would handle the products, earning it a 30 per cent stake, with the remaining share being held by local Muslim professionals.

APA has engaged Muslim scholars to develop the takaful products that it expects to roll out in the first half of next year.

Cannon Assurance has teamed up with First Community Bank in a joint venture to roll out takaful covers.

Under the deal, First Community —an Islamic Bank — will develop and market the products to ensure they are halal (acceptable to Muslim faithful) while Canon will settle and take the claims.

“Muslims have largely kept away from insurance products that do not conform to their faith,” said Francis Njenga, the business development manager at Cannon Assurance.

The local insurance companies are following in the footsteps of Kenya’s banking industry which has embraced Islamic compliant banking.

Sharia law bars financial service providers from earning or charging interest and instead offers a return to savers by sharing profits from loans lent to ethical businesses, which do not include alcohol, tobacco and gambling dealers.

Barclays Bank was the first financial to test the market with a sharia-compliant product in December, 2005, and since then Islamic financial products have exploded with at least eight commercial banks ,including KCB, tapping into this market.

Two Islamic driven banks with roots in the Middle East— Gulf African and First Community—opened shop in 2007 and have since moved to the profit zone, illustrating the vibrancy of the Halal economy in the country.

Though Kenya has a fast growing Islam friendly financial sector, the products and services are also catching up in cosmetics, telecoms, real estate, insurance, hotel and travel sectors.

Analysts say that the Muslim community could help the local insurance industry bridge its performance gap relative to the banking industry.

The country’s 44 insurance firms announced a combined profit of Sh5.8 billion in 2009 while the 44 banks raked in Sh49 billion in the same year.

Mr Eric Musau, an analyst at African Alliance said there is a pent-up demand for Islamic financial services in general, adding that players moving to serve the niche services stand to reap significant returns.