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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
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
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.
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.
One-Year Motor Takaful Certificate
provides protection against specified motor-related risks during the certificate period.
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
General Takaful Business
within the same operator/company structure.
Composite Operator = Family Takaful + General Takaful
ABC Takaful Berhad
20-year Family Takaful plans
one-year Motor and Property Takaful
ABC Takaful would be operating as a:
Composite Takaful Operator
3. Why Were Composite Operations Important?
management resources
distribution networks
technology
administrative functions
business infrastructure.
However, Family and General Takaful involve significantly different types of:
Risk
Expertise
Underwriting
Actuarial considerations
Business management
This creates an important regulatory concern.
4. Malaysia’s IFSA 2013 Framework
Islamic Financial Services Act 2013 (IFSA 2013)
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.
ABC Takaful
Family Takaful
- ●
General Takaful
under the composite structure.
After separation, the businesses become separately conducted operations, for example:
ABC Family Takaful → Family Takaful Business
ABC General Takaful → General Takaful Business
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?
Specialisation
Family and General Takaful are different businesses.
Family Takaful
long-term liabilities
mortality risks
long-term savings/investment
retirement products
long-term actuarial assumptions.
General Takaful may involve:
motor claims
property damage
fire
catastrophe exposure
marine risks
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
General Takaful catastrophe risks
Weak Property Underwriting → Excessive Risk Accepted → Major Catastrophe → Large Claims
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
retirement and savings products.
A General Takaful operator can concentrate on:
property underwriting
motor risks
catastrophe exposure
claims management
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
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
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
Participants’ Risk Funds
Organisation and regulation of the businesses
rather than turning them into completely unrelated concepts.
Same Broad Takaful Principles + Different Types of Risk + Separate Specialised Operations
12. Important Difference: “Composite” Does Not Mean Mixing All Funds Together
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
Composite = All Participants’ Money Mixed Together
13. Simple Example
Suppose before the separation:
XYZ Takaful Berhad
Family Takaful
death and disability protection
General Takaful
Composite Takaful Operator
XYZ Takaful
XYZ Family Takaful
- ●
XYZ General Takaful
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
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
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.
