Takaful - Types of Takaful Operations

Takaful business is broadly divided into two major segments, similar to the life and non-life distinction in conventional insurance:

1. Family Takaful

and:

2. General Takaful

Historically, a single Takaful operator could conduct both types of business under a composite structure. In Malaysia, however, the Islamic Financial Services Act 2013 (IFSA 2013) introduced a framework under which family and general Takaful businesses are conducted separately. Bank Negara Malaysia’s current directory likewise lists operators by either Family Takaful Business or General Takaful Business. 

1. The Two Main Types of Takaful Business

The basic classification is:

Takaful Business → Family Takaful + General Takaful

These two businesses deal with different types and durations of risk.

Family Takaful

Family Takaful is broadly comparable to the life segment of conventional insurance.

It generally provides longer-term protection and may also include savings or investment.

For example:

20-Year Family Takaful Plan

may provide death protection while also accumulating savings for retirement or children’s education.

Therefore:

Family Takaful = Long-Term Protection + Possible Savings/Investment

General Takaful

General Takaful is broadly comparable to the non-life/property and casualty segment.

It generally provides short-term protection against risks such as:

motor accidents

fire

property damage

marine risks

and other covered general risks.

For example:

One-Year Motor Takaful Certificate

provides protection against specified motor-related risks during the certificate period.

Therefore:

General Takaful = Mainly Short-Term Risk Protection

2. What Is a Composite Takaful Operator?

A composite Takaful operator is an operator that conducts both:

Family Takaful Business

and:

General Takaful Business

within the same operator/company structure.

Therefore:

Composite Operator = Family Takaful + General Takaful

For example, imagine:

ABC Takaful Berhad

conducts both:

20-year Family Takaful plans

and:

one-year Motor and Property Takaful

ABC Takaful would be operating as a:

Composite Takaful Operator

under such a structure.

3. Why Were Composite Operations Important?

Operating both businesses under one organisation can appear efficient because the operator may share certain:

management resources

distribution networks

technology

administrative functions

and:

business infrastructure.

However, Family and General Takaful involve significantly different types of:

Risk

Expertise

Underwriting

Actuarial considerations

and:

Business management

This creates an important regulatory concern.

4. Malaysia’s IFSA 2013 Framework

Malaysia introduced the:

Islamic Financial Services Act 2013 (IFSA 2013)

as part of a broader modernisation of the regulation and supervision of Islamic financial institutions.

IFSA came into force in 2013 and strengthened the regulatory framework, including its focus on Shari’ah compliance, differentiated requirements according to the nature and risks of financial activities, consumer protection and financial stability. 

In the Takaful sector, the framework required the separation of Family and General Takaful businesses rather than allowing domestic operators to continue indefinitely as composite operators.

The material identifies:

1 July 2018

as the effective date by which the composite Takaful operations concerned had to be separated.

5. What Does “Split Their Operations” Mean?

The idea can be understood simply.

Before separation, imagine:

ABC Takaful

operates:

Family Takaful

• ●

General Takaful

under the composite structure.

After separation, the businesses become separately conducted operations, for example:

ABC Family Takaful → Family Takaful Business

and:

ABC General Takaful → General Takaful Business

Therefore:

One Composite Operation → Separate Family and General Takaful Businesses

This is visible in Malaysia’s present regulatory directory. For example, Bank Negara Malaysia separately lists Etiqa Family Takaful Berhad for Family Takaful Business and Etiqa General Takaful Berhad for General Takaful Business; it similarly lists separate family and general entities for Takaful Ikhlas and Syarikat Takaful Malaysia. 

6. Why Separate Family and General Takaful?

One important reason is:

Specialisation

Family and General Takaful are different businesses.

Consider:

Family Takaful

May involve:

long-term liabilities

mortality risks

long-term savings/investment

retirement products

and:

long-term actuarial assumptions.

General Takaful may involve:

motor claims

property damage

fire

catastrophe exposure

marine risks

and:

short-term underwriting.

Therefore, expertise in one area does not automatically mean equal expertise in the other.

7. Limiting Risks Where Expertise Is Insufficient

Suppose an operator is highly experienced in:

Family Takaful

but has limited expertise in:

General Takaful catastrophe risks

If the same operator aggressively expands into property and catastrophe Takaful without adequate underwriting expertise, poor decisions could expose the business to substantial losses.

For example:

Weak Property Underwriting → Excessive Risk Accepted → Major Catastrophe → Large Claims

The separation requirement encourages operators to develop the necessary specialised capabilities for the particular business being conducted.

Therefore:

Specialised Business → Specialised Expertise → Better Risk Management

8. Greater Focus on Core Expertise

The separation also encourages each operator to focus on its:

Core Area of Expertise

A Family Takaful operator can concentrate on areas such as:

mortality

long-term actuarial modelling

Family Takaful product design

long-term investment

and:

retirement and savings products.

A General Takaful operator can concentrate on:

property underwriting

motor risks

catastrophe exposure

claims management

and:

General Retakaful arrangements.

Therefore:

Separation → Greater Specialisation → Stronger Technical Focus

9. Family and General Takaful Have Different Risk Profiles

The separation becomes easier to understand by comparing the timing of their obligations.

Suppose a Family Takaful operator issues a:

30-Year Family Takaful Certificate

The operator must manage obligations extending over decades.

This requires assumptions concerning matters such as:

Mortality + Investment + Expenses + Long-Term Liabilities

General Takaful may instead issue:

One-Year Property Takaful

where the major concerns include:

Claim Frequency + Claim Severity + Catastrophe Exposure + Short-Term Pricing

Therefore:

Family Takaful → Mainly Long-Term Risk Management

General Takaful → Mainly Short-Term Underwriting Risk Management

The businesses require different skills and management approaches.

10. Promoting Stability in the Takaful Sector

Another objective identified for the separation was:

Industry Stability

The intention was not simply to create more companies.

The broader objective was to support a Takaful sector consisting of:

Sound and Efficient Operators

An operator concentrating on a clearly defined area can develop stronger:

management expertise

risk-management systems

actuarial capabilities

underwriting processes

and:

governance.

This supports the broader regulatory objective of maintaining financial stability. Bank Negara Malaysia described IFSA as part of a framework intended to safeguard financial stability while strengthening regulatory and supervisory oversight. 

11. Separation Does Not Mean Family and General Takaful Are Unrelated

Both businesses remain based on the broader principles of Takaful, including:

Mutual Assistance

Risk Sharing

Tabarru’

Shari’ah Compliance

and:

Participants’ Risk Funds

The separation concerns the:

Organisation and regulation of the businesses

rather than turning them into completely unrelated concepts.

Therefore:

Same Broad Takaful Principles + Different Types of Risk + Separate Specialised Operations

12. Important Difference: “Composite” Does Not Mean Mixing All Funds Together

The word:

Composite

means the operator conducts both Family and General Takaful businesses.

It should not be understood to mean that all participants’ funds are automatically combined into one large common fund.

Family and General Takaful involve their own relevant fund structures and obligations.

Therefore:

Composite = One Operator Conducting Both Types of Business

not:

Composite = All Participants’ Money Mixed Together

13. Simple Example

Suppose before the separation:

XYZ Takaful Berhad

conducts:

Family Takaful

20-year education plans

25-year retirement plans

death and disability protection

and:

General Takaful

one-year Motor Takaful

Property Takaful

Fire Takaful.

XYZ is therefore a:

Composite Takaful Operator

Under the Malaysian separation framework, the businesses would need to be organised separately rather than continuing under the composite structure.

Conceptually:

XYZ Takaful

↓

XYZ Family Takaful

• ●

XYZ General Takaful

Now each business can concentrate on the expertise, risks, capital, management and regulatory requirements relevant to its own activities.

14. Current Malaysian Structure

Bank Negara Malaysia’s current directory continues to distinguish licensed operators according to Family Takaful Business and General Takaful Business. For example, the directory separately identifies Etiqa Family Takaful Berhad and Etiqa General Takaful Berhad, as well as separate family and general entities for Takaful Ikhlas and Syarikat Takaful Malaysia. 

This demonstrates the practical effect of separating the two types of Takaful operation.

Easy Way to Remember

Use:

FAMILY → GENERAL → COMPOSITE → SEPARATE → SPECIALISE

FAMILY

Long-term Takaful protection, often with savings/investment.

GENERAL

Usually short-term property, casualty and other risk protection.

COMPOSITE

One operator conducts both Family and General Takaful.

SEPARATE

Malaysia required the relevant composite operations to separate Family and General businesses under the IFSA 2013 framework.

SPECIALISE

Separate businesses can concentrate on their own risks, expertise and management requirements.

Simple Formula

Originally, a composite structure can be represented as:

Composite Takaful Operator = Family Takaful + General Takaful

Under the Malaysian separation framework:

Composite Operation → Separate Family Takaful Business + Separate General Takaful Business

The regulatory reasoning can be remembered as:

Separation → Specialisation → Better Risk Focus → Sound and Efficient Operators → Greater Sector Stability

One-Sentence Summary

Takaful business is broadly divided into Family Takaful and General Takaful; although an operator conducting both is known as a composite operator, Malaysia’s IFSA 2013 framework required the relevant composite Takaful operations to separate their Family and General businesses, with the aim of encouraging specialised expertise, better management of different types of risk and continued stability and efficiency in the Takaful sector.