Determinants That Cause Insurance Policyholders To Participate (Adopt) In Takaful In Malaysia

Abstract

Takaful is appreciable around the world without any doubt. It is based on cooperation and donation. The concept of Takaful is desirable to everyone in both Muslim and Non-Muslim countries. Similar to  insurance, Takaful can provide the same benefit, coverage, and protection to the participants. Further it has an additional unique feature, i.e. its compliant nature with Islamic principles. Hence, Islamic Insurance (Takaful) business has enormously grown; nevertheless, there are still complications, difficulties, and questions that impede the expansion and extension of the Takaful industry. Penetration rate of Takaful is not as good as it is supposed to be even in Muslim majority countries. Therefore, the objective of this study is to investigate the factors that promote participation in Islamic insurance with insurance policyholders in Malaysia as an example. Both logit and probit models are applied to Muslims and non-Muslims’ data supposing two situations: one is the adoption to Islamic insurance and the other is the shift from conventional to Islamic insurance. The estimation results show that factors that affect the adoption and shift to Takaful are different among Muslims and non-Muslims, implying different strategies are required for effective promotion of adoption and shifting to Islamic insurance in Malaysia. The Malaysian government and Islamic insurance operators are keen to develop Islamic insurance and they are more concerned about the penetration of Islamic insurance. Thus, this research might be of interest to regulators, Takaful operators, insurance operators, and other concerned bodies.