Friends Provident may offer Sharia compliant products

One of the UK's biggest life insurers, is looking to offer Islamic insurance services in the Gulf to expand its regional presence

Friends Provident International, the global arm of one of the UK's biggest life insurers, is looking to offer Islamic insurance services in the Gulf to expand its regional presence. The company already offers conventional insurance products and services throughout the UAE from its headquarters in Dubai, but wants to open more offices in the GCC.

"We have taken the decision that we don't just want to cosmetically put a takaful brand over what we do," said Matthew Waterfield, the general manager for the Middle East and Africa of the company. He said Friends Provident would study the insurance needs of the Islamic community next year. Takaful is an Islamic insurance concept. The investment bank Alpen Capital expects the takaful industry to grow by 16.1 per cent a year over the next two years.

Friends Provident also hopes to take advantage of business opportunities as companies in the region look to develop gratuity schemes for employees and demand grows for life insurance. "The big issue here is to get through to companies, particularly local companies, the importance of putting money away for the end of service liability," said Trevor Matthews, the chief executive of the company. As a form of pension scheme, companies in the UAE and elsewhere in the GCC are legally required to pay out a lump sum when an employee leaves their company, based on their number of years of service. In the UAE, this equates to about 21 days' salary for the first five years, rising to 30 days' salary after that.

But no legislation exists to control how companies should set aside the money for payouts. "A lot of companies are paying the gratuity from cashflows and others might have it on the balance sheet, which is exactly the wrong place for it to be as if something goes wrong with the company, you've lost your end of service gratuity," said Mr Matthews. Friends Provident is experiencing increasing demand, led by international companies with operations in the Emirates, for savings and investment vehicles to protect gratuity money.

At the same time, employees are becoming increasingly aware of their rights to the service in the absence of a more substantial corporate pension scheme, Mr Matthews said. Friends Provident registered £40 million (Dh220m) of new business in the UAE last year, matching the previous year. It also sees opportunities to sell more life insurance products to companies and individuals. Life insurance forms just 1 per cent of GDP in the UAE, compared with 9 per cent or higher in developed markets such as the UK and US.

Life insurance involves an insurer paying out a designated sum of money to a beneficiary in the event of a serious illness or death of the insured individual. "During the boom years everyone in the UAE thought they were invincible; that they were going to earn forever, live forever," said Mr Waterfield. "In the last 18 months we have become more vulnerable, everyone has been looking at job security and there's been more focus on their own life insurance."

Since November, however, the company saw demand shift back towards its savings products as interest returned to building wealth again, he said. A slowdown in the domestic insurance market in the UK and global growth meant the company's overseas business last year accounted for more than 50 per cent of total business for the first time. In November, it was taken over by Resolution, the UK buyout company. Resolution is seeking to consolidate three or four UK life insurers before selling them by 2012.

"The UK market is going to go through a period of consolidation," said Mr Matthews. "There are a few too many players in the UK market and the terms for shareholders are not good enough."