Takaful - Lack of Product Innovation

In many countries where Takaful operates, the products offered are often very similar or almost identical to conventional insurance products. Instead of designing products that are uniquely based on the principles and objectives of Takaful, operators may simply copy an existing insurance product and adapt its terminology.

For example, a conventional motor insurance policy may be reproduced as a Motor Takaful product with almost the same:

• Coverage
• Exclusions
• Benefits
• Pricing structure
• Claims process
• Distribution method

The main visible changes may simply be:

Premium → Contribution

Policyholder → Participant

Insurance Fund → Participants’ Risk Fund

This is sometimes described as a “carbon copy” or “cut-and-paste” approach. The product may satisfy the basic Shari’ah requirements, but there may be little real innovation in how protection is designed or delivered.

The problem is that Takaful has its own distinctive principles, such as:

• Mutual assistance
• Risk sharing
• Tabarru’
• Participant welfare
• Shari’ah-compliant investment
• Social responsibility
• Financial inclusion

Therefore, Takaful products could potentially be designed in ways that reflect these principles more clearly instead of simply imitating conventional insurance.

Example

A conventional insurer offers standard health insurance.

A Takaful operator copies the same product and changes only the contractual structure.

This is product imitation.

A more innovative Takaful operator might instead develop a plan that includes:

• Preventive healthcare incentives
• Affordable protection for low-income families
• Surplus-sharing features
• Digital access for underserved communities
• Community-based mutual support

This would make the product more clearly aligned with the broader objectives of Takaful.

Lack of innovation can also make Takaful products difficult to distinguish from conventional insurance. If customers see no meaningful difference in benefits or service, they may simply compare the two products based on price.

This increases price competition and may reduce profitability.

Simple Idea

Same product + Same benefits + Same service → Customer compares mainly on price

For long-term success, Takaful operators need to move beyond simply copying conventional insurance products. They should develop products that are:

• More innovative
• More inclusive
• More customer-focused
• More clearly based on mutual assistance
• More responsive to new risks and social needs

Easy Formula

Copying Insurance Products → Little Differentiation → More Price Competition

Whereas:

Takaful Innovation + Shari’ah Values + Customer Needs = Stronger Product Differentiation