Takaful - Digitalisation and Takaful-Tech

• Takaful operators need to make better use of technology and digital infrastructure.
• Digitalisation can help Takaful operators:
• Reduce operating costs
• Improve efficiency
• Provide faster services
• Improve customer experience
• Reach more customers
• Maintain Shari’ah compliance more effectively

Simple Idea

Technology → Lower cost + Better service + Wider access

1. Why Technology Is Important for Takaful

• Traditional Takaful operations may involve:
• Physical branches
• Paper applications
• Manual claims processing
• Face-to-face sales
• High administrative costs
• Digital technology allows many of these activities to be carried out online.

Examples

Customers may be able to:

• Apply for Takaful online
• Pay contributions digitally
• Upload claim documents through an app
• Check certificate details electronically
• Communicate with the operator through online channels

Simple Idea

Manual process → Digital process → Faster and cheaper operation

2. Cost Efficiency

• Technology can reduce the cost of distributing and managing Takaful products.
• This is especially important for:
• Micro-Takaful
• Low-income customers
• Rural customers
• Small-value Takaful products

Example

Without digitalisation:

• Takaful operator needs physical branches
• Staff manually process applications
• Customers submit paper documents
• Higher administrative costs

With digitalisation:

• Customer applies through mobile phone
• Documents uploaded electronically
• Payment made online
• Application processed automatically

Simple Idea

Lower operating cost → More affordable Takaful products

3. Better Customer Service

• Digital platforms can provide customers with:
• Faster applications
• Faster claims
• Easier access to information
• 24-hour access to services
• More convenient payments

Example

• Ahmad has a minor motor accident.
• Instead of visiting a branch:
• He opens the Takaful mobile application.
• Uploads photos of the damaged car.
• Submits the claim electronically.
• Tracks the claim status online.

Simple Process

Accident → Mobile claim submission → Digital assessment → Faster claim processing

4. Takaful-Tech / Islamic Insurtech

• Takaful-tech refers to the use of technology to improve the delivery of Takaful products and services.
• It is similar to insurtech in conventional insurance, but Takaful-tech must operate in accordance with Shari’ah principles.

Technology May Be Used For

• Digital sales
• Automated underwriting
• Claims processing
• Customer verification
• Data analysis
• Fraud detection
• Mobile payments
• Online customer service

Simple Idea

Takaful + Technology = Takaful-Tech

5. Impact of COVID-19

• The COVID-19 pandemic accelerated the use of digital financial services.
• Customers became more comfortable purchasing insurance and Takaful products online.
• Physical movement restrictions encouraged companies and customers to rely more heavily on digital platforms.

Example

Before COVID-19:

• Customer may visit a branch to buy Takaful.

During and after COVID-19:

• Customer may prefer:
• Website
• Mobile app
• Online banking
• Digital Takaful platform

Simple Idea

COVID-19 → Greater reliance on digital channels

6. Growing Customer Preference for Online Channels

• Research referred to in the text showed strong interest in digital insurance channels in countries such as:
• Malaysia
• Indonesia
• Customers may prefer online channels because they are:
• Easy to access
• Convenient
• Faster
• Potentially cheaper
• Digital channels can be particularly useful for lower-income and underserved customers because operators may be able to provide products at lower distribution costs.

Example

A low-income customer may not live near a Takaful branch.

Instead:

• Uses a smartphone
• Compares available products
• Applies online
• Pays a small contribution digitally

Simple Idea

Online access → Easier access to Takaful for underserved customers

7. Digital Insurers and Takaful Operators - DITOs

• Bank Negara Malaysia introduced a framework initiative relating to Digital Insurers and Takaful Operators (DITOs).
• The objective was to encourage new digital-focused insurance and Takaful providers.
• These operators are intended to deliver products mainly through:
• Digital channels
• Electronic platforms
• Technology-based business models

Simple Idea

DITO = Insurance or Takaful operator designed mainly around digital delivery

8. Purpose of the DITO Framework

• The framework was intended to establish requirements for new digital insurers and Takaful operators.
• These operators should have strong business ideas or value propositions.
• A major objective is to improve services for the underserved market.

Underserved Market May Include

• Lower-income households
• Rural communities
• People with limited insurance/Takaful access
• Small businesses
• Customers who may not use traditional financial channels

Example

• A digital Takaful operator develops a simple Micro-Takaful product.
• Customer joins using only a smartphone.
• Monthly contribution = RM10.
• No physical branch is required.

Simple Process

Digital operator → Lower distribution cost → Affordable product → More underserved customers reached

9. Supporting Financial Inclusion

• Digital Takaful can support financial inclusion.
• Financial inclusion means giving more people access to useful and affordable financial services.
• Technology can allow Takaful operators to serve customers who were previously too expensive or difficult to reach.

Example

A farmer in a rural village may not have access to a Takaful branch.

Through a digital platform:

• Farmer registers using a phone
• Purchases Crop Takaful
• Pays contribution electronically
• Receives claim payment digitally if a covered loss occurs

Simple Idea

Digital Takaful → More people can access financial protection

10. More Competitive Takaful Products

• Digitalisation can increase competition in the Takaful industry.
• Operators may compete by offering:
• Lower costs
• Faster service
• Simpler products
• Better digital applications
• More personalised protection

Example

Two Takaful operators offer similar Motor Takaful.

Operator A:

• Paper application
• Branch visit required
• Claim takes several weeks

Operator B:

• Online application
• Digital payment
• Mobile claims
• Faster processing

Customers may prefer Operator B because of convenience.

Simple Idea

Better technology → Better competition → Better products for customers

11. Innovative Business Models

• Technology allows Takaful operators to develop new ways of providing protection.
• Examples may include:
• Fully digital Takaful
• On-demand protection
• Micro-Takaful through mobile applications
• Usage-based products
• Embedded Takaful within banking or e-commerce services

Example

• Ahmad purchases airline tickets online.
• During checkout, he is offered Travel Takaful.
• He selects the protection digitally.
• His Takaful certificate is issued immediately.

Simple Idea

Takaful protection can be integrated directly into digital transactions

12. Technology and Shari’ah Compliance

• Digitalisation must not weaken Shari’ah compliance.
• Takaful operators must ensure that:
• Digital contracts are Shari’ah-compliant
• Investments remain Shari’ah-compliant
• Fees are transparent
• Participants understand the arrangement
• Funds remain properly separated
• Automated processes follow approved Shari’ah rules

Example

• A digital platform automatically invests participants’ funds.
• The system must ensure that investments are only made in approved Shari’ah-compliant assets.

Simple Idea

Digital innovation must still operate within Shari’ah requirements

13. Main Benefits of Digitalisation for Takaful Operators

• Lower operating costs
• Faster processing
• Wider customer reach
• Better data management
• Improved underwriting
• More efficient claims handling
• Better fraud detection
• Greater customer convenience
• More affordable products
• Better access to underserved communities

14. Main Benefits for Customers

• Easier application process
• Faster access to protection
• Lower transaction costs
• More convenient contribution payments
• Faster claims
• Better product comparison
• Greater access for customers outside major cities

Simple Idea

Digital Takaful benefits both the operator and the participant

Overall Example

Suppose XYZ Takaful develops a fully digital Micro-Takaful product.

Traditional method:

• Customer visits branch
• Completes paper application
• Staff manually process documents
• High administration cost

Digital method:

• Customer applies through mobile app
• Identity verified electronically
• Contribution paid online
• Certificate issued automatically
• Claims submitted digitally

Result:

• Lower operating costs
• Faster service
• More customers reached
• Product becomes more affordable

Easy Way to Remember

Technology Helps Takaful Operators

• Reduce costs
• Increase efficiency
• Reach more customers
• Improve service
• Develop innovative products

Digital Takaful Helps Customers

• Easier access
• Faster applications
• Faster claims
• Lower-cost protection
• Greater convenience

Simple Formula

Takaful + Digital Technology + Shari’ah Compliance = Takaful-Tech

And the main objective is:

Use technology to make Takaful more efficient, affordable, competitive and accessible.