Takaful receives grim assessment in IFSB review

Takaful received a grim assessment in the Islamic Financial Standards Board (IFSB) and Islamic Research & Training Institute (IRTI) Mid-Term Review (MTR), which was released last week. The takaful business model faces significant challenges, according to the MTR. The challenge starts with the gap between how takaful operators are organized in theory and practice. Moreover, Islamic insurance firms have been not been successful so far outside of a few countries like Saudi Arabia and Malaysia in reaching "critical mass". If the new firms are unable to grow to a large enough size, administrative costs become very steep and reserves will not be sufficient enough to cover losses. If takaful operators engage in a consolidation process (should regulations allow it), it would improve the underwriting marketplace.