The IFSB Issues Working Paper on Consumer Protection in Takāful
Date posted: 17 January 2019
Kuala Lumpur, 17 January 2019 – The Islamic Financial Services Board (IFSB) today issued its ninth research in the Working Paper series which examines regulatory and market practices issues relating to consumer protection in the takāful sector (WP-09). Supported by the results of an industry-wide survey responses from takāful operators and their regulatory and supervisory authorities, this Working Paper explores how an effective and comprehensive consumer protection regime can be designed and implemented throughout different phases of customer engagement with the takāful operators and their intermediaries.
The Secretary-General of the IFSB, Dr. Bello Lawal Danbatta stated, “This Paper is the second issuance in the IFSB’s Working Paper series that addresses issues specifically for takāful industry.” He further added, “This new Working Paper identifies challenges to consumer protection arising from asymmetry of information and difficulties of consumers in evaluating product quality and price, as well as challenges arising from distribution and promotion practices, and from specific features of takāful. Moreover, the Paper also identifies regulatory issues faced in designing and implementing effective and efficient consumer protection regulations and suggests ways to strengthen regulatory oversight of market players. “Given the high expectations of consumers seeking Sharīʻah-compliant solution to their risk coverage through takāful, a well developed consumer protection regime can guide the market operators to provide better products and services to cope with the needs of the public and the economy,” he commented.
A large proportion of takāful sales in the consumer sector are distributed through traditional distribution channels. The analysis and survey results suggest that market practices can deviate significantly from supervisory expectations, particularly with regards to the scope for takāful operators and intermediaries seeking to maximise their own benefit rather than to pursue the consumer’s best interest. The potential conflict of interest is often present in selling practices, and the ability of market players to exploit it, presents a potential for reputational damage in a sector where consumer confidence is an essential attribute.
The Paper emphasises on fair treatment of consumers, to cover the whole products lifecycle from development, to distribution and to claims settlement, in order to reduce the potential risks for mis-selling and other forms of consumer detriments. Further, it recognises that different jurisdictions take different approaches to addressing these issues.
WP-09 also identifies evolving business models and the use of emerging technologies to re-engineer consumers’ experience from the purchase of takāful products to filing of the claim, with benefits and threats that these changes may bring.
Finally, the WP-09 identifies regulatory and supervisory best practises from various jurisdictions on the conduct of business in takāful that could form a basis for a common framework in addition to the existing IFSB Standards and Guiding Principles. Besides, the WP-09 also acknowledges the role of consumer education in creating awareness and uptake of takāful products.
WP-09 is available for download from the IFSB website: www.ifsb.org.
Back to top