Bahrain will have a new takaful model by the end of the first quarter, said a top regulatory official.

Central Bank of Bahrain executive director for financial institutions supervision Abdul Rahman Al Baker said changes to the existing model will attract new entrants to the market and foster competition, reported the Gulf Daily News, our sister publication.

Al Baker said this in the opening keynote address at the Middle East Insurance Forum (MEIF 2014) that started at the Gulf Hotel's Gulf Convention Centre yesterday.

"The work towards revision of the existing takaful model is one such step in reaffirming Bahrain as the jurisdiction of choice for all takaful/retakaful companies globally," he said.

Investopedia defines takaful as a type of Islamic insurance, where members contribute money into a pooling system in order to guarantee each other against loss or damage.

Takaful is based on Sharia and the premise that it is the responsibility of individuals to co-operate and protect each other.

According to the CBB official, the global insurance industry was experiencing dramatic change as reserve and capital regulations transition from the traditional, prescriptive approach to principles-based approach.

The need therefore to standardise regulations in the GCC countries, in terms of regulatory and market conduct requirements, was paramount.

Al Baker said the CBB has also introduced new rules on client money, which aim at enhancing the regulatory framework in relation to appointed representatives and insurance brokers.

"The CBB is of the view that in order to overcome competitive pressures and get profitable growth, companies must ensure that the risk is assessed and priced properly.

"Business should be underwritten and priced in a way that all the inherent risks are considered.

"Generally, it has been observed that companies charge premium rates based on competition and without regard to the proper assessment of risk," he said.

It is also important for insurance entities to ensure that investments are diversified and not concentrated in a particular sector or high risk assets, the official added.

Regulators need to ensure that adequate legislation is in place to develop the enterprise-wide risk management concept in the insurance industry across the region, he said.

"Maintaining adequate level of solvency in line with best regulatory standards is another priority for regulators in the Middle East," Al Baker said.

"Such solvency requirements would be helpful in providing early warning to regulators so they could take the necessary measures, should the capital of insurance firms fall below the required level.

"Regulators should also require market players to establish a corporate governance framework, which provides for prudent management and oversight of the insurer's business and adequately protects the interests of policyholders."

Highlighting the tremendous potential for growth in life insurance, Al Baker said while Bahrain had the highest life insurance penetration in the GCC, it was still much below global levels.

"Due to the huge potential for long-term insurance business in both Bahrain and the whole GCC, it would be sensible to invest in this line of business," he said.-TradeArabia News Service