SADIA KAMRAN: The origin of Takaful in Pakistan dates to 2007 when PQFT first launched. How has Takaful fared since?
MUHAMMAD MENHAS: At under one percent of the total market, insurance has limited penetration in Pakistan. Half of this one percent belongs to State Life Insurance Corporation, a public sector organisation. Of the remaining half, Takaful has a 10% share, leaving a huge market opportunity to be exploited. The market has only begun to understand the importance of insurance and customers now have the ability to choose between conventional insurance and Shariah-compliant products (Takaful). This increase in options has resulted in rapid product innovations – and these have happened far more quickly in Takaful compared to the conventional insurance segment. A major difference between the two models is that in conventional insurance, the amount paid by the customer is divided into the claims account (used to pay insurance claims) and the investment account. Claims filed during the year are settled with payments from the claims account and any remaining amount in the account becomes the company’s profit. In Takaful, however, the surplus amount remaining in the claims account (called Waqf) is returned to the customer. Hence, Takaful companies have no direct benefit in maintaining a surplus in the Waqf account. This is why they are more likely to make claim payments compared to their conventional counterparts and this has been one of the most attractive aspects in opting for Takaful. The other aspect is the fact that Takaful products are in line with most people’s religious beliefs.
SK: What factors have contributed to the sector’s growth?
MM: Annual growth rates of approximately 18% have been witnessed. Initially, PQFT was the only such company. However, later, more dedicated Takaful companies emerged while conventional insurance companies introduced Takaful operations windows. Generous marketing budgets are being deployed to push our products and this has boosted our sales. The year 2017 witnessed a growth rate of 30 to 40%, and this is expected to continue. Increasing awareness has been a major factor contributing to the growth and PQFT conduct regular awareness sessions to educate the public regarding the concept of Takaful. A significant development has been the fact that several universities are offering specialised degrees and post-graduate diplomas in Islamic banking,finance and Takaful. An initiative worth mentioning is PQFT’s partnership with IBA-CEIF (Centre for Excellence in Islamic finance), in which the focus is on increasing Takaful awareness.
Takaful companies have no direct benefit in maintaining a surplus in the Waqf account. This is why they are more likely to make claim payments compared to their conventional counterparts and this has been one of the most attractive aspects in opting for Takaful.
SK: Has the increased competition affected PQFT’s position in a significant way?
MM: The segment would be competitive if market saturation was high. However, with a market penetration of under one percent and Takaful’s overall share in this, any sense of competition is not likely to develop soon. In the next five to seven years, the situation might change. The opportunities are immense but the main players will need to bring about considerable product innovations to tap further into the market.
SK: How has the product portfolio changed over the years?
MM: Initially, our resources were limited to mirroring conventional insurance products, while complying with Takaful guidelines. This was a challenge because the model left very little profit for the company and it was not enough to drive business. Research and experience led to the realisation that our offerings do not have to be similar to conventional insurance products; the focus should be on offering greater value and benefits. Over the years, our innovations have helped us become a benchmark for the industry. We owe our profitability to the high number of policy renewals. Even when the economy slows down, our profits do not take a strong hit as our portfolios are very diverse and this keeps our risks minimised.
SK: How do PQFT usually promote their products?
MM: Initially, promotion was about explaining the concept of Takaful. Then, there was the challenge of a lack of in-house expertise. We use TV and print only occasionally because spending big bucks on promotion was never an objective. It is our sales force, comprising over 1,500 people, that has played a dynamic role in carrying out major promotional campaigns. Cross-selling through collaborations with brands is a new strategy that we are trying out; for example, PQFT customers receive a discount while shopping at J. Even with a limited marketing budget, we have managed to exceed our annual targets. We are planning massive promotions this year as we will be celebrating 10 years of PQFT.
SK: What challenges does the Takaful industry face in Pakistan?
MM: PQFT has faced many challenges since inception, but now we see them as opportunities. We have achieved a degree of customer loyalty and maintaining that base is going to be a challenge because our customers will continue to expect high-performing products from the company. Another challenge will be to maintain market leadership and retain our talent as the Takaful market grows. We will continue innovating to ensure that we remain the first choice for customers. Our long-term focus will be on products, such as PQFT’s Khazeena, which allocates a higher percentage to the Waqf account while also catering to customers’ investment needs at low administrative cost. These products are important because they yield more profits in the long-term and this is crucial for any insurance industry solution.
SK: In a predominantly Muslim market, how do you see the future of Takaful?
MM: Given the market potential, providing exceptional service and innovative products will be the key. If we were able to achieve such tremendous growth rates when the segment was in a nascent stage, the future portends even more growth, as we are now better equipped to develop and sell Takaful products. PQFT has launched an app through which customers can not only purchase the policy, they can also customise it according to their requirements. Increasing customer access in this way will further help increase our market share and better target young people.