23 June 2024

Takaful is here to stay


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By: Dr. Syarah Syahira Mohd Yusoff, Dr. Mohd Zaidi Md Zabri

In the aftermath of the COVID-19 pandemic, a significant transformation has unfolded within the realm of financial security, particularly highlighted by the burgeoning interest in family Takaful.

A closer examination of the state of family Takaful post-pandemic reveals some telling statistics. According to a recent study, the uptake of family Takaful plans saw a staggering increase of 40% in 2023 compared to the previous year.

This rise indicates a growing awareness of the importance of financial planning and the unique benefits that Takaful offers. Furthermore, surveys conducted among new Takaful subscribers reveal that over 60% were motivated by the pandemic to seek out more secure and ethical forms of financial protection.

This surge reflects not merely a change in statistics but a deeper societal recognition of the necessity for robust financial safety nets in the face of uncertainty.

Family Takaful distinguishes itself through its ethical and communal framework, offering a cooperative insurance model that resonates with both the spirit of mutual assistance and the principles of Islamic finance.

The benefits of Takaful extend beyond individual policyholders to foster a sense of community and mutual support. In traditional insurance models, premiums collected are essentially considered the insurer’s profit, barring claims made against the policies.

In contrast, Takaful operates on a system of mutual assistance where surplus funds—after claims are settled—are either reinvested for the benefit of policyholders or distributed among them, thus reinforcing the principle of shared benefit and responsibility.

Despite its robust and ethical model, the widespread acceptance and understanding of Takaful have been hampered by deep-seated cultural hesitancies and a lack of comprehensive education on its benefits and mechanisms.

Besides, the reluctance to discuss or consider Takaful as a vital component of financial planning often stems from cultural taboos around discussions of mortality and the financial implications of death. This hesitancy undermines the broader acceptance and utilization of Takaful, leaving many families unprotected and financially vulnerable.

In many Asian cultures, including Malaysia, there is a significant fear of death and a strong aversion to discussing it, which further complicates the acceptance of life insurance products like Takaful. According to a study published in the Asian Journal of Social Psychology, death anxiety and avoidance behaviors are prevalent in several Asian societies, contributing to the reluctance to engage in conversations about death and financial preparedness. This hesitancy undermines the broader acceptance and utilization of Takaful, leaving many families unprotected and financially vulnerable.

Notwithstanding, despite the impressive growth, the Chief Executive Officer of the Malaysian Takaful Association (MTA), Mohd Radzuan Mohamed, highlighted that about half (46 percent) of Malaysians remain without adequate protection.

In other words, nearly 5 out of every 10 Malaysians still do not have sufficient Takaful coverage.

To bridge this gap, a concerted effort is required to elevate the public’s understanding of Takaful. Agents and educators within the Takaful industry play a critical role in this educational mission.

Takaful agents’ responsibility extends beyond mere sales to encompass the broader goal of enlightening individuals about the significant benefits Takaful offers in terms of long-term security and financial well-being.

Instances of families being left in precarious financial situations due to a lack of Takaful coverage underscore the urgency for more comprehensive financial planning. Such situations reveal not only personal tragedies but also highlight systemic shortcomings in our approach to financial security and preparedness.

The role of Takaful in providing a safety net for families cannot be overstated. In the face of life’s unpredictabilities, Takaful offers not just financial support but peace of mind. For instance, in the event of the primary breadwinner’s demise, the financial impact on a family can be devastating.

Without adequate insurance coverage, families may struggle with daily expenses, educational costs, and outstanding debts. A study titled “Underinsurance Among Children in the United States,” published in Pediatrics, highlights how underinsurance significantly impacts families’ financial stability. This can lead to severe financial strain, including difficulties in paying medical bills, accumulating debt, and delaying or foregoing necessary care.

In such scenarios, Takaful can serve as a critical buffer, ensuring that families are not left in a financial lurch. By providing comprehensive coverage, Takaful helps families manage their financial obligations and maintain stability during difficult times.

Addressing the challenges of cultural reluctance and lack of awareness requires a multifaceted approach. Education and awareness campaigns are crucial in demystifying Takaful and highlighting its benefits.

Takaful agents, in particular, must be equipped with not only the knowledge but also the empathy to navigate sensitive discussions around death and financial planning. By adopting a more consultative and educational role, agents can play a significant part in changing perceptions and encouraging more families to consider Takaful as part of their financial planning.

Takaful agents can help operationally by adopting best practices from conventional insurance agents, such as providing personalized financial assessments, conducting regular follow-ups, and offering tailored advice that meets the specific needs of each family.

By utilizing digital tools for customer relationship management (CRM), agents can efficiently track and manage client interactions, ensuring a high level of service and responsiveness. Additionally, they can organize community workshops and online webinars to educate the public about Takaful’s principles and advantages, thereby fostering a more informed and engaged client base. Through these strategies, Takaful agents can enhance their role as trusted advisors, building lasting relationships based on trust and transparency.

The integration of Takaful into broader financial planning discussions is not just beneficial but necessary. As societies grapple with the financial ramifications of global crises like the COVID-19 pandemic, the need for secure, ethical, and communal financial products becomes ever more apparent. Takaful stands out as a beacon of financial resilience, offering a model that not only protects but also unites communities in mutual support and solidarity.

The statistics speak to a growing trend towards Takaful, driven by a collective desire for financial security and ethical investment. By continuing to promote open discussions about financial planning, the long-term benefits of Takaful, and the role of education in overcoming misconceptions, we can look forward to a future where Takaful is recognized not just as an option but as an essential component of comprehensive financial planning.

This evolution is not merely about planning for the inevitable but about fostering a community of mutual support and ensuring a secure future for generations to come.

Dr. Syarah Syahira Mohd Yusoff is an Assistant Professor at the IIUM Institute of Islamic Banking and Finance, International Islamic University Malaysia, and Dr. Mohd Zaidi Md Zabri is a Senior Lecturer at the Department of Finance, Faculty of Business and Economics, Universiti Malaya.