Family Takaful and Life Insurance Malaysian Landscape: Demand Escalation

Transcription

1. Family Takaful and Life Insurance Malaysian Landscape : Demand Escalation Norizan Remli PhD Candidate School of Finance Universiti Islam Malaysia Cyberjaya Email: norizanremli@yahoo.com Romzie Rosman School of Finance Universiti Islam Malaysia Cyberjaya Emel: Romzie@uim.edu.my Muhammad Muda School of Finance Universiti Islam Malaysia Cyberjaya Emel: mmuda@uim.edu.my Abstract: This is a conceptual paper to study the family Takaful and life insurance landscape in Malaysia. The study reviews literature on the history of family Takaful and life insurance operation from the beginning of the industry started. The paper goes on to analyse the demand factors that play role on the growth and elevation of the business. These factors were analysed and discussed throughout the paper in the context of factors that influence the demand. The factors outlined in the paper are analysed using the theoretical framework of demand theory. The findings of the paper include the types of factors that play a role on demand towards family Takaful and life insurance. Conclusions from the literature are drawn that the factors plays a key role in how the industry will grow and develop. The paper ends with recommendations on future research on how to increase the growth and cater the untapped market in Malaysia. Keyword: Takaful, Insurance, demand 1
2. 1 .1 Introduction Comparatively, conventional and Islamic financial institutions studies exhibit a huge gap between the theories base of Islamic institutions and some of the practices of those institutions. In some operational activities, Islamic financial institutions are found to adopt traditional methods that do not comply with the principles of Islamic Shariah (Al-Ajmi, AlSaleh & Hussain, 2011). As early as 1970s, when it started as a small cottage industry in some Arab countries,, the Islamic finance differentiating itself from conventional finance in compliance with the principles of Islamic law or Shariah (Ahmed, 2010). In Asian countries, most of insurance sector publically owned and they had monopoly over there and the government has restricted private or foreign investment in this sector, although, this sector has been opened for foreign and private investors throughout their economic restructuring (Akhter & Khan, 2015). From around 93% of insurance market hold by the European and American countries in 1960-70 decade, it was down to 56% as the Asian market share increased from 3.8% in 1960s to 30% in 2012 (Akhter & Khan, 2015). In Malaysia, Insurance and Takaful operate privately under supervision of Bank Negara Malaysia. Prior to Insurance Act 1963, foreign firms’ branches operating in urban areas dominated the insurance industry in Malaysia. Due to the Act enforcement, participation of domestic firms has increased from six (6) in 1983 to 51 in 1997 (Abu Mansor & Radam, 2000). Presently, there are 14 life insurance companies and 11 Takaful operators beautifying Malaysian industry’s landscape. This market condition has called for investors to establish their products according to the target markets and grow this sector. However, the market still underdeveloped and the acceptability of conventional insurance across different Asian countries are still questionable especially in Muslim predominant countries. Unacceptability among Muslims due to 2
3. prohibition of conventional insurance in Islam because of elements of Riba (interest), Gharar (uncertainty) and Maisir (gambling) in insurance contract, thus, leads to establishment of the Takaful to fulfil the needs of larger Muslim population (Akhter & Khan, 2015). In Malaysia, the emergence and development of Takaful could be seen as a well-charted and gradually implemented Islamization strategy in commerce (Alhabshi & Abdul-Razak, 2009). In 1982, a Special Task Force (STF) was established by the Malaysian Government to study the viability of setting up an Islamic insurance company. Pursuant to STF’s recommendations, the Takaful Act was passed by the Parliament and subsequently enacted in 1984 which was modelled after the existing Insurance Act for conventional insurance, with appropriate modifications to conform Shariah principles. Then, in 1984, the first Takaful Company was set up (Nahar, 2015). In Malaysia, the basis of Takaful’s operation is established on the principles of Islamic Laws Takaful operations are regulated by the Central Bank. The regulation and supervision has been adopted by this supervisory body in practice. This contributes to rapid growth and transformation for the Takaful industry (Berkem, 2014). The two main operating models practiced in Malaysia are the first Mudharabah and later Wakalah systems. As for Mudharabah model Takaful Operator (TO) accepts payment of the Takaful Contributions from the participants. The surplus from the operations managed by the operator to be shared is specified between the participants and the TO. The sharing of such profit may be in a ratio 5:5 (in some cases 6:4, 7:3, etc.) as mutually agreed between the contracting parties (Berkem, 2014). 1.1.1 Family Takaful Business Takaful business is highly recommended by most Muslim scholars because it portrays the real meaning of brotherhood in providing protection to both individual and corporate bodies 3
4. against loss or hazards to themselves and their properties (Alnemer, 2013). Basically, there are four types of business models available in the market. There are Mudharabah, Wakalah, Hybrid and Waqf Models in the marketplace. Then, Family Takaful products are merely the same of conventional by coverage namely savings and investment, family income protection, education, retirement or pension, credit or mortgage, health and medical and keyman Takaful. Additional to that is Takaful Waqf which offered only by Takaful operators. 1.1.2 Life Insurance Business Modern insurance started to spread around the world in the nineteenth century from the British Isles. British merchants living in India and Canton have brought insurance to reach Southeast Asia rather than through agencies of European firms even though it is a European invention. As for life insurance, the first life insurance company was set up in London in 1772 with the employment of mortality tables starting in 1776, thus paving the way for the calculation of the future. After generations of evolution, in the 1860’s only the European insurance companies have made a real breakthrough in the East as a result of improved communication channels with Europe and the opening up of China and India had made the Pacific region and its lucrative markets attractive (Borscheid & Haueter, 2015). 1.2 Underpinning Theories of Insurance Demand 1.2.1 Prospect Theory Prospect theory is an alternative theory of choice under conditions of risk, and deviates from expected utility theory by positing that people evaluate choices with respect to gains and losses from a reference point. They tend to overweight losses with respect to comparable gains and engage in risk-averse behaviour with respect to gains and risk-acceptance behaviour with respect to losses. They also respond to probabilities in a non-linear manner. Prospect theory is 4
5. a behavioural economic theory that describes the way people choose between probabilistic alternatives that involve risk , where the probabilities of outcomes are known (Kahneman &Tversky, 1979). Prospect theory is a model of decision making under risk. Significantly, finance and insurance areas are the most obvious places to look for its applications where attitudes to risk play a central role (Barberis, 2013). Traditional economic theory suggests that risk aversion (the concavity of Bernoulli utility function) is the most important factor determining the demand for insurance. And it predicts that risk aversion increases insurance demand, however, Hwang (2015) shows that the demand for insurance is more closely associated with Prospect Theory. This theory suggests that loss aversion decreases the demand because certainly rational consumers regard insurance as a risky investment that can cause losses. Let say if insurance is framed narrowly, that is its value is evaluated in isolation from other risks – then, insurance can be regarded as a “risky gamble”. Individuals forfeit premiums if a pre-specified event does not occur) rather than as a means of protecting individuals’ wealth against bad luck. As a result, prospect theory predicts that more loss-averse consumers are less likely to buy insurance and affect the demand. 1.2.2 Demand Theory Demand theory is a theory relating to the relationship between consumer demand for goods and services and their prices. Demand theory forms the basis for the demand curve, which relates consumer desire to the amount of goods available. Demand theory posits that, increase of per capita incomes, people are more likely to spend (Narayan, 2004). Conventional demand theory asserted that people purchase insurance in return of paying small premium to compensate a large claim amount (Nyman, 2002). However, Nyman (2002) demand of theory suggested that consumers prefer risk with a large loss rather than a 5
6. smaller risk with certainty , so that they buy insurance not because they desire to avoid risk but to transfer the burden of losses to the insurer. According to Outreville, (1996), the life insurance demand is considered within the lifetime allocation process of an individual. Thus, the aggregate demand of insurance possibly to be influenced by the external and internal factors of the industry. Hypothetically, this study is fully implied the demand theory of insurance and contribute theoretically to the area of study. 1.3 Comparison between Family Takaful and Life Insurance It is undeniable that both the insurance and Takaful products are in similarity of functions. Thus, should be expected given that the concept of mutually helping each other, which is found in insurance, is also a concept applauded by Islam, however, there are many differences were noted between Takaful and insurance from the conceptual and operational perspective (Ab Rahman, Ali, Che Seman & Wan Ahmad, 2008). The unique structural form of Takaful firms differentiates them from conventional insurance (Al-Amri, 2015). Takaful and the global expansion of Islamic banking have developed hand-in-hand. Islamic financial system is based on a commerce law known as fiqh al-mu'amalat whereby under this law, issues of social justice, equity, and fairness in all business transactions, and rests on the promotion of entrepreneurship, the protection of property rights, and the transparency and sanctity of contractual obligations are considered and under the Shariah, as long as it is free from riba (interest), gharar (uncertainty), maisir (gambling) and non-halal (prohibited) activities a commercial transaction is permissible (Ariss, 2010). 1.4 Theoretical Framework of Demand 1.4.1 Theory of the Demand for Life Insurance Each of the factors expected to affect the demand for life insurance is discussed and the hypotheses of the study are formulated. It is well known that life insurance demand is a function 6
7. of wealth , income stream, interest rates, and insurance premiums and the theoretical models suggested by the previous scholars demonstrate that an individual's wealth and income as well as interest rate level affect life insurance demand (Liu, Lee & Lee, 2016). Theoretical models of the demand for life insurance have been derived by Yaari (1965), (Fisher, 1993), Fisher (1993), Lim and Haberman (2001), Abdul Rahman, Mohd Yusof and Abu Bakar (2008), Redzuan et al., (2009), Ismail, Alhabshi and Bacha (2011), Yazid, Arifin, Hussin and Wan Daud (2012), Redzuan (2014) and Abdou et al. (2014). 1.5 Empirical Studies on Family Takaful and Insurance Demand In general, there are two types of studies focusing into life insurance demand; first is individual life insurance determinants and second, cross-country determinants that looks at life insurance consumption from a macroeconomic point of view (Alhassan & Biekpe, 2016). Md Husin and Ab Rahman (2013) reviewed that attitude, subjective norm and perceived behavioural control not the only factors affecting intention toward participating in family Takaful scheme but also influence by moderating factors like demographic variables, consumer knowledge, situational factors and consumer level of religiosity. Abdou et al., (2014) studied on financial ratios and macro-economic variables namely Gross Domestic Product (GDP), Consumer Price Index (CPI) and Treasury Bill Rate (TBR) and recorded the results indicate that in terms of profitability and risk measurement, conventional insurers perform better than Takaful companies but in respect of premium to surplus ratio Takaful outperform conventional insurance peers. However, Takaful companies have prudent underwriting practices in place to curb information asymmetry. Furthermore, their results indicated that, the macro-economic variables have no impact on the growth of Takaful companies as measured by the net premiums/ contributions unlike in the case of conventional insurance. Nonetheless, net investment income shows statistical significance for 7
8. both industries . Indicatively, both industries efficiently utilize their funds to generate the desired return on their investments. Based on a total sample of 207 responses, Souiden and Jabeur (2015) found that the Islamic beliefs of individual impacted the consumers’ attitude towards the purchase of life insurance. This study postulated that the Islamic beliefs moderate the relationships between attitudes and purchase intentions of life insurance. Whenever, the Islamic beliefs of individuals is weak, the stronger their purchase intentions for conventional life insurance will be and the stronger their Islamic beliefs, the stronger their purchase intentions for Islamic life insurance will be. The effect of national culture in terms of power distance and uncertainty avoidance on service provision in terms of information flow and communication policy within the Takaful industry (Islamic insurance) in Kuwait and Egypt and Hofstede’s claim regarding the homogeneity of Arab culture which believed dominated by the Islamic religion has been investigated by Alajmi, Dennis and Altayab, (2011). This study found that, more differences than similarities exist in terms of power distance and uncertainty avoidance between Kuwait and Egypt, which implies that the differences in national culture between the two countries are in contrary to Hofstede’s claim of homogeneity of Arab culture which perceived as the Islamic religion culture and national culture in terms of power distance and uncertainty avoidance affects service provision in terms of information flow and communication policy, respectively. Consequently, Takaful practitioners and Takaful policy makers and institutions might benefit from this research by understanding the effect of national culture on service provision and taking this as an important factor when designing regulations in order to strengthen the industry (Alajmi et al., 2011). Utilising a panel data covering the period 2005-2007, a study considering 39 insurance firms in the GCC was conducted and found that the insurance industry in the region is 8
9. moderately efficient and there is large room for improvement (Al Amri, Gattoufi & Al‐ Muharrami, 2012). In examining the Malaysian customers’ willingness to adopt Islamic insurance services and the factors that may influence their behaviour, Ayinde and Echchabi, (2012) distributed total of 200 questionnaires randomly to Malaysian customers. Compatibility and awareness are identified as the main factors in the customers’ decision making to adopt Islamic insurance services. According to Bhatia and Jain, (2013), various factors contribute to the growth of insurance sector in Malaysia. Among all are macroeconomic factors like Population, GDP, Per Capita Income, Inflation and Unemployment which have put positive and negative impact on the growth in demand of life insurance. Their study conducted in India found that the main factors affecting growth of insurance penetration, insurance density growth and growth in total insurance premium are Population, GDP, Per Capita GDP, Inflation, and Unemployment. Statistically, population growth, GDP growth and per capita GDP growth exhibit a positive relationship (pull factors) with insurance growth indicators while inflation and unemployment rate exhibit a negative relationship (restrictive forces) with insurance growth indicators. On the other study, Ismail, Alhabshi and Bacha, (2011) examined the efficiency of family Takaful and Life insurance in Malaysia. Using 18 firms comprising of seven (7) Takaful operators, four (4) life insurer and seven (7) composite insurers for the sample of study, the financial data are gathered from the annual report including the financial statements and balance sheet. A pooled cross section and time series data over the period 2004 to 2009 has been employed. Non parametric approach that is Data Envelopment Analysis (DEA) was employed with input orientation measurement to estimate the technical efficiency for both industries. To separate the scale efficiency from the technical efficiency constant return to scale 9
10. (CRS) and variable return to scale (VRS) applied. As a result, the study found that the conventional insurers have higher scale efficiency than Takaful industry. Study by Browne and Kim, (1993) identified important factors like dependency ratio, national income, government spending on social security, inflation, the price of insurance, has led to variations in the demand for life insurance across countries. Although previous study by Brichtman, Dorfman, Rejda and Prichett, (1973) reviewed that purchaser's anxiety on insurance purchasing behaviour as the life insurance demand factor, however this demographic variable cannot be taken for granted that insurance is utilized as a means of reducing anxiety in every individual purchasing situation. The study found that the life insurance purchasing behaviour of married and/or higher income individuals does not prove birth order effect on the decision to purchase life insurance. Whereas, Browne and Kim, (1993) identified the factors that lead to variations in the demand for life insurance across nations. Using 259 samples Mahdzan & Peter Victorian (2013) analysed the influence of demographic variables, saving motives and financial literacy, on life insurance demand. The findings showed that demographic variables and saving motives were significantly related to life insurance demand. However, financial literacy was not significant in determining life insurance demand. 1.6 Factors Affecting Family and Life Insurance Demand According to literatures, study by Yaari (1965) which considered the demand for life insurance within the lifetime allocation process of an individual have been made as the reference in almost all the theoretical works on the demand for life insurance (Lim & Haberman, 2001). A number of studies have examined the effects of macroeconomic factors on the demand for life insurance. Among them are the studies conducted by Lim and Haberman(2001), Abdul Rahman et al.,(2008), Gustina and Abdullah, (2012), Abdou et al., 10
11. (2014) and Redzuan, (2014). Subsequently, the predicted factors investigated in these studies are highlighted and discussed below. Table 1-1: Summary of Previous Studies No. Authors Location of Study Variables Results Fisher, (1993) International (EMENA, LACAR, AFRICA,SASIA,E ASIA,OECD) Dependent variable (DV): Economic Growth Basic indicators of Macroeconomics like inflation rate, budget surplus or deficit and black market exchange premium play a vital role in economic growth of the country. This paper confirms that a stable macroeconomic environment, i.e reasonably low inflation rate and a small budget deficit is conducive to sustained economic growth. Independent variable (IV): Macroeconomics: inflation rate, budget surplus or deficit and black market exchange premium Lim and Haberman, (2001) Malaysia and US DV: Insurance demand measurement: amount of sums insured IV :level of financial development, income per capita, inflation rate, savings , deposits rate, the price of insurance, stock market return and demographic variables – crude live-birth rate, crude death rate, fertility rate and life expectancy at birth for males) The major findings of this study indicate that the savings deposits rate and price change in insurance are two important macroeconomic variables associated with the demand for life insurance in Malaysia. However, the finding on the savings deposits rate fails to show the expected negative sign. Further research is needed in this respect in order to confirm the relationship between these two variables. A change in the price of insurance has a significant negative relationship with the demand for life insurance. 11
12. Abdul Rahman et al ., (2008) Malaysia DV: 1. new business/ certificate issued for family takaful 2. profit before/ after zakat taxes 3. premium/ contributions IV : Economic Variables namely, the GDP,CPI, TBR and KLCI Redzuan et al., (2009) Malaysia DV : Demand -Contribution per capita, Contribution per worker IV -Income ,Interest rate, Inflation rate, Savings rate, Composite Stock Index The study have shown some positive socio-economic impact on Malaysia in terms of employment opportunity and contribution to the country’s gross domestic product, an experience, although small in contribution, could be used as a model for other countries in order to boost savings and investment in their respective countries. For Takaful Malaysia’s net profit versus the economic variables showed statistical significance, mainly indicating that the economic variables, the GDP, CPI and TBR are good predictors of its profits performance. This study finds that only income per capita is a robust predictor of family Takaful demand and longterm interest rate and composite stock index have significant relationship with family Takaful consumption. On the other hand, inflation and savings rates do not significantly influence family Takaful purchase. Abdou et al., (2014) Malaysia financial ratios and macro-economic variables : GDP,CPI, TBR The study found that macroeconomics variable (GDP,CPI, TBR) have impacted conventional insurance growth but not Takaful growth (measured by the net premiums/contributions). Redzuan, (2014) Malaysia DV : premium ( life ins), contribution (family takaful) IV: disposable income, dependency ratio, level of education, EPF, interest , The results of analysis found that the level of income, number of dependents and level of education are significant determinants of life insurance and family takaful demand in Malaysia. These variables are found to positively influence life insurance purchase, 12
13. inflation , savings, interest free savings in the long-run as well as the shortrun. Savings in EPF was found to have a negative impact on life insurance and family takaful consumption both in the long-run and also short-run. The rate of inflation is found to negatively affect life insurance purchase, but the result is ambiguous for family takaful demand. Interest rate is found to have a negative effect on life insurance demand in the longrun but not the short-run. The results indicate that the rate of savings does not influence life insurance demand in either the long- or the short-run, but does have some influence on family takaful demand in the short-run. The estimated income elasticity suggests that consumption of life insurance in Malaysia is about four times more sensitive to changes in income compared to the consumption in the U.S. or in the OECD countries (see Hammond et al., 1967 and Li et al., 2007). Given the higher average income level in the U.S. and the OECD countries, this finding is consistent with the “S-curve” hypothesis by Enz (2000), which suggests that at a higher level of income, insurance consumption becomes less sensitive to income growth Lim, (2005) Malaysia & US DV : Insurance demand IV :Income and stock market return, saving, inflation rate Study demand and lapsations for life insurance only. Comparisons between Malaysia and US. The major findings show that, for Malaysia, the demographic factor, the change in total fertility rate in the previous period (i.e. positive and significant), is a vitally 13
14. important factor in connection with life insurance demand (measured by number, by amount and by premium). Income and stock market return are important factors affecting the consumers' ability to purchase life insurance (in terms of amount and premium). The savings deposit rate is found to be related significantly to new life insurance business (by amount and by premium) but savings deposits seem not to be a competing savings instrument to life insurance. The inflation rate appears not to be an important factor affecting new life insurance business (by amount and by premium) but a high insurance cost tends to discourage the purchasing of life insurance (by number, by amount and by premium). Meanwhile, for lapsation of life insurance, both the forfeiture and surrender rates appear to be affected by the emergency fund effect with respect to the performance of the stock market in the previous period. Only fixed deposit rate is found to have the intended (positive) interest rate effect on surrender rate. The policyholders tend to surrender their life policies in favour of other investments that promise a better value for money in order to preserve their purchasing power in an environment of rising inflation rate. When the costs of obtaining insurance protection become more expensive, the forfeiture rate tends to be lower. The demographic factors tend to have a lagged influence on both the forfeiture and surrender rates. On the other hand, for the comparative study of Malaysia and the US, broadly 14
15. speaking , the inflation rate, crude death rate and total fertility rate are the three factors that appear to be associated significantly with life insurance business in force (measured by number and by amount) in both Malaysia and the US. The surrender rates in Malaysia and the US are affected by a completely different set of factors. Yazid et al., (2012) Malaysia DV : family Takaful Demand IV: Economic factors Income Inflation Interest rate Financial development Savings Unemployment rate Pensions Stock Price of Insurance/Takaful From the thorough review of related literature, this study concluded that for this area of interest, there are nine (9) economic factors Income Inflation Interest Rate Financial Development Savings Unemployment Pensions Stock Price of Insurance and Socio-Economic Factors Life expectancy Dependency ratio Education Age Urbanization Household size Employment status seven (7) socio-economic factors Life Expectancy Dependency Ratio Education Age Urbanisation Household Size/Family Size/Number of Children Employment Status that could possibly influence family Takaful demand. Further study is therefore needed to examine whether all of these factors contribute significantly to the family Takaful demand. 15
16. Gustina and Abdullah , (2012) Malaysia This study found the determinant factor that influence demand for family Takaful and life insurance is different. Demand for family Takaful significantly affected by GDP per capita, education, saving and religion However, for life insurance the factors that significantly influence the demand for life insurance are GDP per capita, saving and religion. The difference is the education factor. The other two factors, Customer Price Index and Saving were negatively influence the demand for family Takaful. Md Husin and Ab Rahman, (2013) Malaysia DV: intention IV: attitude, subjective norm and perceived behavioural control moderating: Demograhic, knowledge, situational, religiosity Sen and Asian Countries Madheswaran, (2013) Demographic factors Found that attitude, subjective norm and perceived behavioural control not the only factors affecting intention toward participating in family Takaful scheme but also influence by moderating factors like demographic variables, consumer knowledge, situational factors and consumer level of religiosity. The paper analyses the factors explaining life insurance demand in 12 Asian economies, including economies from the South Asian Association for Regional Cooperation and Association of Southeast Asian Nations regions, as 16
17. well as China . The results suggest that income, financial depth, inflation, the real interest rate, and the youth dependency ratio are significant determinants of life insurance consumption. Foreign ownership and improved regulations may foster growth. But urbanisation and the literacy rate are among the few determinants found not to have the impact observed in previous studies. Ayinde and Echchabi, (2012) Malaysia Dv: Adoption IV: Uncertainty, relative advantage, compatibility, social influence, awareness Ismail et al. (2011) Malaysia DV : Efficiency IV : Organization forms Souiden and Jabeur, (2015) Tunisia Islamic beliefs), consumer attitudes purchase intentions Compatibility and awareness are identified as the main factors in the customers’ decision making to adopt Islamic insurance services Examined the efficiency of family Takaful and Life insurance in Malaysia. The study found that there is a significant difference in technical efficiency between takafui industry and insurance industry. It is found that takaful has lower technical efficiency than conventional insurance. Importantly, it shows the organization form has an influence on the efficiency. Finally, the study found that the conventional insurers have higher scale efficiency than Takaful industry. This study postulated that the Islamic beliefs moderate the relationships between attitudes and purchase intentions of life insurance. Whenever, the Islamic beliefs of individuals is weak, the stronger their purchase intentions 17
18. Al Amri et al ., (2012) GCC Bhatia and Jain, (2013) India Insurance Performance Net claim Management expenses Net investment income Net premium earned. DV: growth of insurance penetration, insurance density growth and growth in total insurance premium IV: Population, GDP, Per Capita GDP, Inflation, and Unemployment Lee et al., (2016) 39 world countries Financial liberalization, financial crises. Insurance market, country risk, and economic conditional. for conventional life insurance will be and the stronger their Islamic beliefs, the stronger their purchase intentions for Islamic life insurance will be. found that the insurance industry in the GCC region is moderately efficient and there is large room for improvement India found that the main factors affecting growth of insurance penetration, insurance density growth and growth in total insurance premium are Population, GDP, Per Capita GDP, Inflation, and Unemployment. Statistically, population growth, GDP growth and per capita GDP growth exhibit a positive relationship (pull factors) with insurance growth indicators while inflation and unemployment rate exhibit a negative relationship (restrictive forces) with insurance growth indicators Empirical results support that financial liberalization does have a significantly negative impact on the likelihood of currency/systemic banking crises, and that the indirect effects of insurance development and lower country risk decrease the probability of crises, but the indirect effect of economic conditional proxies is enhanced with the likelihood of a financial crisis. The policy implication is that the government or authority should strengthen the positive role of the insurance sector in order to combat financial crises. 18
19. Lee et al ., (2013) 41 countries worldwide life insurance premiums per capita gross domestic product (GDP) per capita Pan et al., (2012) China Economic growth Life insurance premium Muye and Hassan, (2016) 22 countries Real GDP CPI Gross Premiums Trade Government Consumption The long-run estimated panel parameter results indicate that a 1% increase in the real life premium raises real GDP by 0.06%. It is determined that the development of life insurance markets and economic growth exhibit long-run and short-run bidirectional causalities. Found that property of stationarity for life insurance market development varies across different regions. Specifically, stationarity prevails in provinces with middle and low income, indicating characteristics of convergence and the possibilities to forecast future movements of life insurance activities based on past behavior,while 7 out of 10 provinces in high-income group show non- stationarity, suggesting unbound development in these regions and weak predictability. Justifications for the test results are presented from aspects of development of financial market, market structure of life insurance and business strategy of life insurance companies. The Islamic insurance variable appears to be positive and statistically significant in determining economic growth at the 1% level, indicating that the real sector of the economy grows by 0.163% with a 1% increase in Islamic insurance growth. Turning to the control variables, trade is significant and positive at 1%, signifying that the economy grows 1.152% with a 1% increase in trade. CPI appears positive but not 19
20. significant while government consumption has a negative but insignificant effect . 1.7 Conclusion and future research Present life scenarios require individuals to further enhance their attention towards planning the family protection from unanticipated unfortunate. The society awareness and economic condition may potentially increase the industry performance and uphold the sustainability of this sector. Scrutinizing the earlier studies conducted, it shows that the economic factors play a vital role towards the industries growth. Though, these factors react differently between Family Takaful and life insurance demand. Therefore, this hypothetical framework is open for future research for better and fruitful findings. 20
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