3 days ago
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- Business Recorder
Insurance industry's shift to Takaful: SECP maps out strategic transition plan
ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has chalked out a comprehensive, industry-wide Strategic Transition Plan to facilitate the insurance industry's transition to Takaful with a Riba-free economy.
According to the SECP's new working paper, in line with the 26th Constitutional Amendment and the Federal Shariah Court's directive for a Riba-free economy by 2027, it is crucial that both SECP and individual insurance companies take proactive steps towards the transition to Takaful. SECP, in consultation with Shariah scholars and industry stakeholders, needs to formulate a comprehensive, industry-wide Strategic Transition
Plan to facilitate the insurance industry's transition to Takaful. This plan may outline SECP's approach to supporting the transition process, including stakeholder engagement, provision of regulatory support, and identification of key areas for facilitating the industry-wide conversion to Takaful.
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The SECP will specify necessary actions that insurers need to take to align their operations with Shariah principles. This plan may address the conversion of insurance products, investment structures, and operational processes, for ensuring alignment with Shariah principles.
The plan may have defined timelines, milestones, and action items to ensure a smooth and consistent transition across the industry within time.
Additionally, to ensure effective implementation, SECP may consider establishing a Takaful Committee comprising of SECP representation, Shariah scholars, industry experts, and other relevant stakeholders. This task force may help in developing the Transition Plan, providing oversight, and ensuring compliance with Shariah governance standards throughout the transition process.
At company level, the insurers need to develop comprehensive Takaful Adoption Plans, approved by their board and Shariah advisor, outlining their strategy for transitioning to Takaful and aligning with the SECP's plan. These plans may start with an assessment of the insurer's preparedness to meet evolving sector demands, including a gap analysis of policies, products, services, infrastructure, human resources, and areas needing improvement for successful conversion.
The adoption plan may also specify the strategy for transition, whether through geographic (branch-wise) conversion or business-specific conversion targeting certain classes of business, SECP maintained.
Such plans will enable companies to assess their current operations and identify areas for transformation in both product offerings and operations. This assessment, followed by clear action items for converting existing products and restructuring investment portfolios to align with Shariah principles, will provide a solid foundation for the transition to Takaful.
Additionally, the plan should address the transition of operational processes, such as underwriting, claims management, and policyholder surplus distribution.
Facilitation for Takaful Licensing and Product Approval
To enhance Takaful penetration and foster a more Shariah-compliant insurance ecosystem, SECP may facilitate and promote Takaful licensing and product approvals. SECP could encourage new entrants to obtain licenses as full-fledged Takaful operators rather than conventional insurers, creating a more conducive environment for Shariah-compliant insurance.
Additionally, SECP may consider prioritizing the approval of new life insurance products under the Takaful model, encouraging companies to focus on Takaful product development. These measures would support the industry's natural progression towards an Islamic financial framework, contributing to a smoother transition toward a Riba-free economy by 2027, SECP added.
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