Determinants of Family Takaful (Islamic Life Insurance) Demand: A Conceptual Framework for a Malaysian Study

Abstract

<p>Family Takaful is one of the service sectors that are expected to continue to drive growth in the economy. Thus,<br />the family Takaful market continues to play an important role in supporting economic and social development.<br />However, in Malaysia, family Takaful market is still at a lower penetration level if we were to compare to other<br />developed countries even though the Takaful industry continues to sustain strong performance amidst challenges<br />in a competitive environment. Evidence has shown that the percentage of society covered by family Takaful<br />contracts in Malaysia is still very low compared to conventional insurance. Therefore, the study aims to propose<br />a conceptual framework for the determinants of family Takaful demand in Malaysia. From a review of the<br />literature available in this particular area of interest, there are two categories of factors that are found to be the<br />main determinants of family Takaful. These factors are the socio-demography and economic factors.</p

Determinants of Takāful and conventional insurance demand: A regional analysis

“…This is in line with the findings of Beck and Webb (2003), Sen and Madheswaran (2007), Sen (2008) who concluded that larger family size can be a cause of financial sources limit indicating negative relationship between dependents and insurance consumption. This result is contrary to the findings of Sherif (2010), Yazid et al (2012) and Redzuan (2014) who found a positive impact of dependency ratio on Takāful demand in Malaysian economy. This might be due to lack of awareness of Takāful in other sample countries.…”

“…Abdullah, 2012;Beck & Webb, 2003;Browne & Kim, 1993;Dragos, 2014;Redzuan, 2014;Yazid et al, 2012). So we also focus to check the effect of macroeconomic and demographic factors on insurance and Takāful demand.…”

“…Dragos (2014) found positive and significant impact over non-life insurance for both Asian and Central and East European countries (CEE), but positive and significant for life insurance in Asian region only. Yazid et al (2012) developed a conceptual framework for family Takāful demand and proposed a positive relationship between Takāful demand and urbanization. Hence, we can devise the following hypotheses for urbanization:…”

“…While Yazid et al (2012) in their conceptual framework for family Takāful demand expects positive impact of dependency ratio. Redzuan (2014) found both long run and short run positive impact of number of dependents on life insurance and family Takāful in Malaysia.…”

“…At first, to our knowledge, we provide the first comparative study across ASEAN and Middle East regions that investigates the determinants of conventional and Islamic insurance demand. Previous literature on comparative studies between insurance and Takāful demand determinants is mostly time series nature such as, (Abdullah, 2012;Redzuan, 2014;Yazid, Arifin, Hussin, & Daud, 2012). Secondly, use of macroeconomic and demographic factors as explanatory variables that generalise those used in recent studies pertaining to conventional insurance (e.g.…”