London-based firm Cobalt has developed a sharia-compliant insurance platform that uses a syndication model to help spread risk across a panel of underwriters, a novel format that could boost capacity in the sector.
Operators in the takaful (Islamic insurance) sector, which has its core markets in the Gulf and southeast Asia, have been limited in their ability to take on large commercial risks, partly due to a lack of scale.
"Once you get beyond small commercial risk, takaful doesn't work. We have created a multiple-insurer platform to provide the sort of capacity the industry needs," said chief executive Richard Bishop,
The platform will allow Islamic insurance to work on an unprecedented scale. Essentially, multiple insurers pool their capacity and each can subscribe to the desired level of risk though individual Islamic windows, Bishop said.
"We are syndicating the risk across a panel of insurers. What we are about is developing an Islamic alternative in London for Islamic insurance," Bishop said.
Cobalt aims to address capacity constraints in the takaful (Islamic insurance) industry, which is based on the concept of mutuality; where a company oversees a segregated pool of funds contributed by all policy holders.
In their investments, takaful firms must follow religious guidelines such as a ban on interest and pure speculation.
Global takaful contributions were expected to reach $12.4 billion in 2012, according to a report by consultants Ernst & Young last April.
The new platform allows each insurer to have a takaful window, where policyholder funds are segregated from conventional funds, without affecting their rating levels and helping price the risk competitively, said Bishop.
"It is essential to our offering that all security is of at least an A rating in order to satisfy the requirements of both buyers and their financiers," he said.
The risk is priced by a lead insurer and other firms must then subscribe under similar terms, a similar approach to the subscription model used in London's insurance market.
Cobalt has secured underwriting capacity from XL Group to insure property risks with capacity of up to $300 million.
Cobalt would seek to underwrite large transactions of no less than $30 million in value while it is also seeking to expand capacity into the construction sector, Bishop said.
In the long term, further capacity could be added for other risks including trade finance, Islamic finance institutions, energy and aviation, he added.
Bernardo Vizcaino, "London firm launches Islamic insurance platform" Reuters May 16, 2013
"London firm ventures into Islamic insurance business" Business Times May 17, 2013
Reproduced with permission from Islam Today