Principle Insurance has become the UK's first Sharia compliant independent insurance company to be formally authorized by the FSA. The insurer will operate in accordance with Islamic laws, through which it will target the UK's estimated two million Muslims in the home and motor markets. In this way, the company is demonstrating a different approach to segmenting the insurance markets.
The FSA has given formal authorization for Principle Insurance to operate as an insurance company in the UK. The company will trade in compliance with Sharia Islamic laws in regards to financial services, which prevent accruing interest and some forms of investment. As such, Principle Insurance will operate along the lines of typical cooperative mutual insurers already present in the market.
While the insurer is not the first in the UK market with a Sharia compliant offering - HSBC already markets takaful insurance products - it is the first independent company set up to be fully compliant with Islamic law in the UK.
Takaful insurance is based on the concept of co-operation and mutual protection. Insurers who adhere to this approach see policyholders as contributors participating in a fund for mutual benefit. They are essentially the owners of the fund and the company simply manages it on their behalf, much the way a co-operative does.
Instead of making a profit, the company will be paid a management fee, or Wakala. The business is further separated from mainstream insurers through its utilization of Sharia scholars who will supervise the activities of the takaful fund in order to ensure compliance. In many other ways, however, it will operate as a typical direct insurer, and Principle's motor insurance will be available from the end of 2008 via the internet or telephone.
The entry of another insurer into the crowded home and motor markets will undoubtedly increase competition, but this also highlights the trend in recent years towards increased market segmentation in insurers' offerings. There are already providers that have sought competitive advantage in these markets by targeting women, such as Sheilas' Wheels, or over 50s, such as Saga. This marks a natural evolution towards alternative segmentation. Although providers that have only targeted specific market segments in the past have proven adept competitors in the market, as of yet none have been able to break into the top 10 distributors for home or motor insurance in the UK (according to Personal Insurance Distribution 2007). In line with this trend, Datamonitor expects that, despite its unique market position, Principle Insurance will remain a niche competitor.