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Takaful insurance is showing impressive growth as it takes business from traditional insurers that face difficulties in providing products that comply with Islamic law (Shariah), a new report reveals.
The takaful market has recorded growth rates of around 20% in recent years with premiums of more than $2 billion (€1.6 billion) written in 2005, according to "Takaful: A Market with Great Potential," which was released this month by Moody's Investors Service. Takaful insurance premiums are expected to reach $7.4 billion annually by 2015, the report predicts.
Takaful business is growing because conventional insurance conflicts with Shariah in two meaningful ways, said Timour Boudkeev, a vice-president with Moody's and author of the report. "Firstly, tradtitional insurance is thought to have a large element of 'gharar', a term that denotes uncertainty, ambiguity or deception," he said in a statement announcing the report's release. "As the payoff from an insurance policy is dependent on occurrence of uncertain events in the future, the amount of compensation has no predictable relationship with the insurance premium, which disqualifies conventional insurance as an acceptable financial product under Islamic law."
Investment strategies by conventional insurers also run afoul of Shariah, according to Mr. Boudkeeve. Interest is forbidden under Islamic law, which means conventional bonds and other sources of funding are not acceptable, he explained.Copies of the report are available from Moody's London office at +44-20-7772-5566 or New York office at +1-212-553-1658.