As we move into the tail end of 2022, we are globally facing an increasing number of climate-related challenges, from the devastating floods in Pakistan to the looming energy crisis in Europe. ISFI spoke to Marcel Omar Papp, the Head of Swiss Re Retakaful Malaysia, to learn more about how sustainability risk impacts Takaful and re-Takaful operators.
“Takaful operators are sharing the risk with re-Takaful operators. So if Takaful operators are impacted by sustainability risk, the same happens to re-Takaful operators,” Papp told ISFI.
While Takaful and re-Takaful operators are both impacted by sustainability risk, re-Takaful operators have an advantage due to their inherent diversification as re-Takaful operators have risks distributed across a wide geographical region. Additionally, re-Takaful operators are insulated against the impact of sustainability risks for their generally larger capital base, which is designed to manage risks globally.
“Naturally, the advantage of re-Takaful is the diversification of effect. Usually, you don’t have catastrophes across the globe in all countries. So, inshaAllah, maybe in one country you can make up losses with a surplus in another country,” Papp explained.
With the expected rise in climate change, environmental and sustainability-related issues, we asked Papp if we can expect Takaful and re-Takaful premiums to also increase, to factor in the increased risk premium. While sustainability-related issues are expected to rise, greater Takaful adoption may provide economies of scale, Papp explained.
This is an excerpt from an interview with Marcel Omar Papp, Head of Swiss Re ReTakaful Malaysia. Listen to the full discussion on sustainability risk and its impact on Takaful and Retakaful operators on IFN OnAir.