London is looking to Indonesia to help create opportunities around Islamic insurance and diversity
While all eyes have been on Egypt for the 2022 United Nations Climate Change Conference (Cop27), which kicked off on 6 November, the London market may have snuck open the door to its long-held ambition to become a leading global centre for Islamic financial services.
Just as Lloyd’s of London chief executive John Neal was in London wishing new prime minister Rishi Sunak a good trip to COP27, the International Underwriting Association’s boss Dave Matcham was in Jakarta, where the London market signed a memorandum of understanding (MOU) with the Indonesian Sharia Insurance Association (AASI).
The MOU outlines an agreement where the London and Indonesian insurance markets work together to enhance not only cooperation, but efforts to increase joint training initiatives and build closer ties between the associations and their respective memberships.
Indonesia is home to more than 200 million Muslims - this represents 87% of its population. It has 15 fully fledged takaful companies, 45 sharia insurance windows and is the fourth largest takaful market in the world.
Investopedia describes takaful insurance as “a type of Islamic insurance wherein members contribute money into a pool system to guarantee each other against loss or damage”.
Indonesia has been building its Islamic insurance sector with support from the nation’s government, which is keen to see sharia coverage available to more businesses that would like to access this capacity.
Opportunities for London?
This ambitious growth plan is based on a need for sharia compliant reinsurance - something the London market, under the auspices of the Islamic Insurance Association of London (IIAL), has been working to create for several years.
London, therefore, has these sharia foundations in place and has been looking for a risk or facility that could act as a catalyst for action by its underwriters.
The potential scale of the requirements from the Indonesian takaful market may well be that catalyst - but the benefits to the UK go deeper.
For some time, the UK government has been keen to drive greater diversity in the financial services sector and the transaction of Islamic insurance and reinsurance would open the market to a new talent pool of Muslim students - at present, these individuals are not keen to start their careers in a market which is deemed to be counter to their religious beliefs.
London dipping its toes into Indonesian sharia reinsurance may also open the door to the creation of capacity for the UK’s Islamic businesses - the UK has so far seen a number of efforts to establish Islamic insurance operations in personal lines fail to materialise.
This MOU, therefore, tests the London market’s real ambitions over Islamic (re)insurance. Many underwriters and brokers have been telling the IIAL that they are keen on this class of business if the risks and demand are evident.
Some in the market believe that the events last week in Indonesia have the potential to create this demand, which ticks the boxes for London in terms of scale and risk profile.
The question now will be whether the appetite is truly there?