BAKU, Azerbaijan, June 17. Takaful (Islamic insurance) products could serve as a catalyst for deeper insurance adoption in Azerbaijan, according to the latest publication by the Islamic Development Bank Group.
“Azerbaijan’s insurance market is small but growing. Total insurance premiums reached AZN 1.353 billion (approximately USD 796 million) in 2024, a 10.7 percent year-on-year increase. Insurance penetration stands at 1.1 percent of GDP, up from 0.99 percent in 2023 but well below the OECD average of 6.2 percent. The market comprises approximately 16 insurance companies regulated by the CBAR. Azerbaijan’s low insurance penetration represents both a structural challenge and an opportunity. The introduction of takaful products could serve as a catalyst for deeper insurance adoption, particularly among segments of the population that may be reluctant to engage with conventional insurance due to concerns about its compatibility with Islamic principles,” says the report of the Islamic Development Bank Institute (IsDBI) and the International Islamic Trade Finance Corporation (ITFC) titled “Islamic Finance in Azerbaijan: Breaking New Ground” launched during the IsDB Group Annual Meetings in Baku.
Takaful operates on fundamentally different principles from
conventional insurance. Where conventional insurance transfers risk
from insured to insurer, takaful distributes risk among
participants through mutual cooperation (ta’awun). Each participant
donates a portion of their contribution (tabarru’) to a common pool
to assist other participants in the event of loss, eliminating the
elements of riba (interest), gharar (excessive uncertainty), and
maysir (gambling) that Shariah scholars identify in conventional
insurance contracts.
Three operational models predominate: the wakala (agency) model,
where the operator charges a predetermined management fee; the
muḍārabah (profit-sharing) model, where the operator shares in
investment profits; and the hybrid wakala-muḍārabah model (now the
dominant model globally) which uses wakala for underwriting
operations and muḍārabah for the investment side.
The global takaful market has grown significantly, reaching an estimated USD 33-40 billion in gross written contributions in 2024, with asset growth of 16.9 percent and an increase of 15.4 percent in gross written contributions. Despite this growth, takaful accounts for approximately 1.4 percent of total global Islamic finance assets, with much room for expansion.
The GCC region dominates, making up close to 85 percent of global takaful contributions, with Saudi Arabia, Malaysia, UAE, Indonesia, and Iran as the largest markets.
