The inclusion agenda

1. The inclusion agenda Mutual Insurance and Takaful in Changing World Istanbul November12 and 13, 2012 Rodney Lester

2. Insurance development is correlated with income level

3. Insurance supports economic growth ‘Even controlling for the traditional variables believed to explain growth, we find that the exogenous components of banking and life insurance penetration are robustly predictive of increased productivity across our sample of 55 countries for the 1980-1996 period. We also find evidence of synergy between banks and insurers, thus producing greater benefits jointly than indicated by the sum of their individual contributions.’ Source: Webb, I. et al,The effect of banking and insurance on the growth of capital and output, Georgia State University, 2002

4. However insurance is less developed Islamic countries Source: Feyen, E. et al, What drives the development of the insuraneve sector?, World Bank Working Paper, February, 2011

5. This is consistent with the regression findings after allowing for income and structural variables

6. Religion is intrinsic to everyday life in Islamic Countries – 20% World Pop.

7. However numerous factors now support the development of Takaful • Demand • Economic growth – greater wealth • Reduced fiscal space of governments • Break down of family support systems • Increasing desire to fund education due to changing economic drivers • Supply • Slow emergence of acceptable standardized model? • Government support of cooperative models in Islamic countries • Interest in Takaful models in non-Islamic countries with large Muslim populations • Development of Islamic Finance • New distribution systems – e.gbanktakaful

8. Some Muslim countries have long term fiscal space challenges

9. E&Y nowcasts/ Forecasts show continued rapid growthUS$ millions Source: E&Y 2012 Takaful Report

10. Some key challenges for Takaful • Pricing paradigm – how much allowance for risk in competitive markets? • Treatment of surplus – allowing for growth and risk – who owns it? – c.f. estate in mutual insurers. • Beneficiary options – who can benefit from an insurance policy? • Retakaful and retrotakaful – how much capacity – how much flexibility to use conventional markets?

11. The World Bank sees Takaful as an important development vector • Linking to development agenda – microinsurance, bancassurance, disaster funding, sectoral liberalization, optimal industry structure etc • Dealing with issues arising from Financial Sector Assessments – linking to international standards • Helping to support efforts at standardization of interpretation through convening power – one objective of the new book.

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