It is rare for a single claim to wipe the entire Takaful pool because Takaful insurance companies are equally covered by re-Takaful or re-insurance companies as the case with sound and prudent conventional insurance. In this interview with The Economic Times, the Managing Director/CEO of Jaiz Takaful Insurance Plc, Momodou Musa Joof, highlights value propositions of Takaful system of insurance. Excerpt:
Why do you think Jaiz Takaful Insurance Plc is unique in the industry?
Takaful is unique because it’s the only system of insurance which shares profit generated by the company to Participants who do not suffer losses at the end of the business year. Also, claims are settled promptly. The system of Takaful insurance is very transparent, ethical and fair to all. You may be aware that insurance companies never used their own money to settle losses, they collect money from a large number of people of whom a few number may suffer losses and make claims. Insurance companies take ownership of profit and surplus that remain after settling such claims; profit and surplus are shared between the company and shareholders by way of dividend payments. Variably, Takaful is a different system by way of accounting. The conventional insurance takes a Premium in exchange of risk transfer. Takaful takes a Contribution for Participation and sharing of risk. Invariably, Takaful policies cover everything that the conventional insurance would cover.
When you take insurance policy from Jaiz Takaful Insurance Plc, you are a Participant, that is, you are coming to participate in the creation of a mutual pool from which people who suffer losses are paid and at the end of the period, the surplus or profit generated by the pool is distributed or shared among the Participants who do not surfer losses. So, in a nut shell, we are unique because we operate a win-win insurance system in the Nigerian insurance industry: If you are a Participant, you would either benefit by way of getting your claim settled promptly or stand to benefit from the profit sharing at the end of the business year if you do not make any claim. Another unique feature of Takaful is that even the under privilege, who have nothing to insure, benefits from Takaful by way of receiving Zakat—that amount of money which goes for distribution to the needy. For every 1000 Naira of profit or surplus to distribute, we must set aside 25 Naira for less privileged or deprived members of society. You can imagine when we have over three hundred million Naira to distribute, how substantial the Zakat could be. It means, if we make 5 billion Naira profit or surplus, we would change lives of many poor members of the society. For instance, the first Zakat from operation of Takaful Gambia went to the National Hospital, the second Zakat went to eight high school students whose parents could not pay their school fees. By the way, I established the first Takaful company for West Africa in the Gambia, it is called “Takaful Gambia Limited”. I am a Gambian.
Who are your clients?
This is our second year of operation in Nigeria. The Company was registered in 2014 we got our license in 2016, the products were not approved for sale by the regulator, the National Insurance Commission (NAICOM) until about mid-2017. Within a year and half, we are patronized by the most prominent individuals and corporate organizations both private and public in Nigeria. We are participating in all the big corporate accounts you could think of or you could find in Lagos or Abuja and elsewhere. We have a branch in Lagos, Kano and Kaduna while our headquarter is in Abuja.
After operating for a complete business year, when would you share profits/surplus to the Participants who did not make any claim?
We have not operated for a complete business year yet, we got our license in 2016 but the products were not approved until mid-2017. So, we are yet to get a full business year however, our Audited Account of 2018 in December would have had some number of the Policies qualified for profit sharing, if any. Mind you, only accounts which have ran for 365 days accident-free are considered for profit sharing.
When are your Participants who do not suffer any loss qualify for profit sharing?
Just as I said, look at it on a time line, somebody who starts insuring with us from first of January by the time it is December 31st, the person has done 365 days which is a year. If during that year, he did not suffer any losses and has not benefited from his Takaful insurance by way of claim settlement, then he should look forward to benefiting from the profit generated. However, if you come to us on the 15th of January, 2018, when we close our accounts in 31st December, 2018, your policy would still be in force for another 15 days before expiring. You would not fall within the profit sharing of 31st December period because your policy is still running. When your policy expires on 15th January, 2019, then your profit sharing is considered in the Audited Accounts for the period ended 31st December, 2019.
What do you do when a single claim wipes away the entire pool?
It is rare to happen; insurance companies, be it conventional or Takaful, do not bite more than they can chew. The same way people come to us to buy insurance is the same way insurance companies go out to buy protection from re-Takaful or re-insurance companies. We insure individuals or corporate entities while re-Takaful or re-insurance companies insured insurance/Takaful companies. We are new but fully covered by re-Takaful companies. In a worst-case scenario where there is no more money in the Participant’s account, we take from our shareholders capital a loan free of interest and give it to the Participants’ account; if the account needs N3 million to pay its liability, we will take a loan of N3 million from the shareholders’ account to pay the deficit. However, when the portfolio becomes profitable before it goes for distribution, it must pay back the N3 million to the Shareholders’ account with no interest added to it.
How do you rate the legal and regulatory framework of Takaful insurance in Nigeria?
Well, the regulators have gone beyond expectation. They have done everything possible to make sure that Takaful, in Nigeria, is fully supported by a sound regulatory framework. While putting the operational guidelines together, NAICOM invited all stakeholders and went to different countries for every relevant information needed for the guidelines. In some jurisdictions, elsewhere, Takaful operations started without legal and regulatory framework.
What are your challenges as a start-up?
In Nigeria you hear people talking about the challenges of Takaful. Well, I don’t want to call it a challenge, I want to take it as hurdle associated with start-ups everywhere in the world. When you start a business, it has its teething problems that you have to address along the line. This has to do more with awareness creation; people need to know about Takaful in Nigeria. Another hurdle is that it cost high to build branches; it’s difficult to spread overnight because of the financial limitations. Also, the unhealthy competition of conventional practice has to be overcome. There should be adequate pricing of products and recognition of licensed intermediaries and so on.
It is also important to note that insurance penetration is very low in Africa, generally. The rate of patronage and contribution to GDP are very low. There is a strategy being adopted by insurance stakeholders in Nigeria to rebrand, revamp and boost the image of the industry. I think it is a good approach because it’s not just rebranding Takaful but the entire insurance industry. If only we approach the challenges as an industry, it becomes surmountable. Also, we need the regulators’ and authorities’ support by looking into the cost of awareness creation with a view to make it more realistic and affordable for start-ups. The Government through the regulators can consider subsidizing cost of awareness creation.