Question: "Why did Bank Aljazira decide to enter the Islamic Insurance market?"

Dawood Taylor: "Approximately six years ago, The Saudi Arabian Monetary Agency (SAMA) announced that all future life insurance/investment operations would come under their jurisdiction. As such, only banks would be allowed to market and sell personal life/investment products. Because of this SAMA directive, many of the companies and brokers selling life insurance/investment products in the Kingdom had to either forge an alliance with a local bank or close down their operations.

A number of major life insurance operations approached Bank Aljazira to forge an alliance but at this time another very important decision was made, this time by the bank's board. As the bank had already recently agreed a strategy of only developing new products on an Islamic basis and convert existing conventional products and services to Islamic equivalents over the next the number of years, it made sense to adopt the same strategy for a life insurance program. As no major international life insurance company had entered the Takaful Ta'awuni market at this time, the bank's board made a decision not to accept any offers to develop a conventional life insurance program, but instead to investigate the possibility of developing an Islamic equivalent program, Takaful Ta'awuni, for introduction to the Saudi market. As the development of such products and programs are market and client driven, it also made a great deal of business sense to adopt such an approach."

Question" "Having made the decision to enter the Takaful Ta'awuni business, what problems did the bank face in developing and introducing such a program to the Saudi market?"

Dawood Taylor" "I am not sure if any of us involved understood the magnitude of the task in front of us when we made the decision to develop a Takaful Ta'awuni program. Outside of S.E. Asia and Sudan, very little in the way of Islamic insurance had been developed and most of this development was in the area of General rather than life or Family Takaful as it is more commonly referred to. On researching the existing models, operations and products, as well as Sharia decisions in the various parts of the world where Takaful Ta'awuni did exist, it soon became apparent that the bank would have to develop their own program from scratch with very little opportunity to import an existing program and customize it to our own needs'

Question: "Specifically, please give us some examples of the types of problems the bank faced in developing their Takaful Ta'awuni program?"

Dawood Tayloyr: "There were many issues and problems to overcome. If one considers that the development encompassed every aspect in establishing conventional insurance operation then you many have some idea of the areas that had to be covered. Specifically, the following areas should be mentioned. Essentially, you cannot have a Takaful Ta'awuni program unless you have a Sharia Board that is willing to work with you to review and scrutinize every aspect of the development to ensure you are Sharia compliant. Bank Aljazira worked very closely with their knowledge being made of some of the most highly respected and knowledgeable Sharia scholars in the world (Khalil, please name them). Working through the bank's Head of Islamic Banking and Reporter to the Sharia Board, Dr. Mohammed Al Ghamdi, the Takaful Ta'awuni division met with the board to review all of the contracts, schedules, products and program decision where there was any Sharia implication. After a considerable number of meetings and recommended changes we were very proud to receive approval for our program from our Sharia Board, with an issuing of a Fatwa in March 2001.

In addition to Sharia approval, it was also necessary to obtain SAMA approval for our program. This took the form of two parts. In early 2000, a feasibility study was presented to SAMA in order to obtain their initial approval for such a program. This study was drawn up by the bank and their Takaful and actuarial consultancy expert we hired to work with us throughout this development. SAMA reviewed the proposal and agreed that the bank could proceed with such a development. In mid 2002 after the Sharia and business development had been completed, SAMA was presented with full documentation on the initial products BAJ wished to introduce to the market. After review, SAMA gave its written approval to enter the Takaful Ta'awuni business in the Kingdom and is also the first time that such a fully developed program has been introduced within the Middle East.

As well as these two significant approvals from the banks Sharia Board and SAMA, another major issue that needed to be overcome during the development of the program was that no commercially available Takaful Ta'awuni IT solution existed in the world market place. As such, the bank had no choice but to develop, over a two year period, its own Takaful Ta'awuni software which would handle every aspect of the business operation from SAMA regulated client illustrations to contract issuing, premium collections, underwriting, claims, sales management and client investments. This solution was jointly developed in partnership with a specialized IT company and our Takaful consultants. This is significant development within the Takaful industry, which we are very proud to have developed.

Another aspect of the development that is of interest in is in the underlying Islamic contracts that the Takaful Ta'awuni program is based on. Up till this time, a Mudarabah or profit sharing contract was the contract of choice in the industry. Our own Sharia board was uncomfortable with the use of an Islamic profit sharing contract in an industry where surplus rather than profit is generated. Instead, Bank Aljazira adopted a Wakala or agency contract, which relies on Wakala fees as income rather than a profit sharing formula. We believe this is a much more transparent form of Islamic contract to use in a Takaful environment and it is interesting to note that the industry is moving towards a Wakala type model at this time.

Every other aspect of this development, which very much mirrors what needs to be developed in a conventional insurance operation, was undertaken by the Takaful team. This is rather an understatement but time does not permit to go into all of the details involved"

Question: "How does the Takaful Ta'awuni division tackle the issue of Sharia compliant investments for its program clients?"

Dawood Taylor: "We were very fortunate in inheriting a range of both Sharia compliant and SAMA approved bank Islamic mutual funds that covered both a broad range of equities and a money market equivalent Murabaha fund. The assets in these funds are kept totally separate from the bank's assets. We are also looking at developing an Islamic Bond fund based on the recently announced Malaysian/HSBC Islamic bond issue. Client may choose a number of different investment strategies we have developed based on our range of Islamic mutual funds which best suit their investment requirements whilst all protection contributions are held solely in the bank's Murabaha fund.

Question: "What Takaful Ta'awuni products is the bank offering to the Saudi public at this time?"

Dawood Taylor: "We have received approval from SAMA to offer three individual products and three corporate products to the market at this time. The individual products consist of a retirement plan which is a savings and protection product, a level term protection plan and an Awqaf plan which allows a participant to a save towards a charitable donation to a selected Saudi Charity or perhaps to go towards building a mosque. We also have introduced corporate plans for Group Term I.e. protection for all employees of a company, Group Credit, to protect the balance of a car repayment and Group Retirement to allow both a company and an individual to save towards a retirement program. In addition, the bank has a number of other products with SAMA for approval. These consist of individual plans for education, marriage, ladies, capital and increasing and decreasing terms as well as a range of supplementary riders for Total and partial disability, contribution waiver, critical illness and family income protection. It is interesting to note that the bank developed a full program of products from both the individual and corporate market with an It system that full support both and allows the development and creation of new products without any major hard coding requirements.

Question: " How have your products been accepted since you entered the market?"

Dawood Taylor: "We entered the market some five months ago with a soft launch in the Jeddah region and it is fair to say that sales have exceeded all of our expectations. The level of interest in our products has to be put down to the major research development the bank undertook before launching the program as well as the fact that we have both Sharia and SAMA approval to offer our products on the local market. The bank now plans to recruit 100 young Saudi graduates to train as Financial Advisors to offer the Takaful Ta'awuni products throughout the Kingdom, with regional offices in Riyadh and Dammam planned to be opening over the next 12 months. This is a very existing time for the bank with all the efforts being rewarded with the excellent reception our products have received since introduction.

Question: "I am sure we could cover a lot more ground in discussing this fascinating development, and I am sure this will be the subject of future articles in Tamin, but could you just summarize what you feel is necessary for the successful development and introduction of a Takaful Ta'awuni program in the Kingdom?"

Dawood Taylor:" It would be my pleasure to provide further details on our development in future articles, in summary, a prospective Takaful Ta'awuni operator must view the development as an Islamic development not as an Islamic stamp on a conventional insurance product or program. A great deal of research is required even before the program development commences. Ensure that you are fully supported by experienced Takaful, actuarial; IT and Business consultants to both check your progress and adherence to both Islamic and insurance operation principles and practices. Also, without the full support of Bank Aljazira's Sharia Board, Executive Committee, General Manager, Mishari Al Mishari, and the other bank divisions none of this successful development would have been possible. Finally, the Bank Aljazira Takaful Teams deserves special mention for their dedication and devotion on this development.