23-06-2008: Re-takaful business yet to pick up in Malaysia

By Kevin Tan

KUALA LUMPUR: Munich Re Group, the first foreign company to operate a re-takaful business in Malaysia, finds that many takaful operators are not duly concerned about syariah compliance when it comes to re-insuring their risks.

In an interview with The Edge Financial Daily recently, its chief executive (Greater China and Southeast Asia) Ulrich Trumpp said the company would continue to help increase awareness of the availability of syariah-compliant re-takaful.

“There has to be a change management process and we cannot expect behaviour to change overnight,” he said, adding that Munich Re’s value proposition was to give takaful operators an option of offering fully syariah-compliant products.

“Otherwise, we also have the conventional re-insurance,” Trumpp said.

Trumpp also said re-takaful still accounted for a “small volume” of the company’s business as it was at the infant stage. However, he pointed out that it would be a priority segment for the company, going forward.

“There are 1.3 billion Muslims worldwide and the global takaful business is worth US$1.5 billion to US$2 billion (RM6.6 billion),” he said, adding Munich Re would use Malaysia as the model for its re-takaful business in other countries.

“We will see how much the Muslim society accept this,” he said.

Trumpp reckoned its re-takaful business was on the right track despite its small volume and the company had been working with eight takaful operators in the country.

Munich Re, which is one of the world’s largest reinsurers, secured a composite licence from Bank Negara in September 2006 that allows the company to operate a re-takaful business without having to form any joint venture.

Trumpp said Munich Re was also hoping that governments in Asia would work more closely with insurance companies to protect public assets and utilities.

He said half of natural catastrophes in the world occurred in Asia but its insurance penetration was only 11%.

While developed countries spent about US$700 per capita on insurance every year, countries such as India and Indonesia only spent US$12 per capita, he said.

“Governments have to understand that the development of the insurance industry is absolutely critical. This year, there were already two major destructions, with tremendous impact,” he added.

Citing the recent earthquake in Sichuan as an example, Trumpp said countries were losing in terms of gross domestic product every year by not insuring their public assets and had to raise taxes to rebuild these infrastructure.

He said globally there were 960 catastrophes such as floods, earthquakes and typhoons last year, in a rising trend since 1980s.

“It is sad to see the concept of insurance is not used in Asia although it has the most densely populated areas in the world,” he added.

He explained that Asia had more than 100 cities with at least one million people and several with more than 30 million, and these cities would store a lot of value even in a small space due to their density.

Trumpp said governments would be driven to properly assess their risks and set up risk prevention measures by enforcing stringent building codes if public assets were insured.

In this context, he envisaged Munich Re becoming a partner with Asian governments to manage their risks as the company had been in Asia for more than 90 years and understood the risk scenario in the region.

It could provide critical assessments and assist governments in Asia to stabilise the insurance industry in their countries at a reasonable cost, he said.