What
is the concept of actuarial in the takaful business?
Actuarial is basically a process of applying
mathematical and statistical methods to estimate the prudent pricing for any
particular product introduced by Takaful. Prudent pricing means that the
contributions paid by the participants are expected to establish a fund which will
be sufficient to pay for all future claims relevant to the coverages
provided. This can be achieved by
applying actuarial methodologies based on the past experience and trend regarding
a particular risk to estimate future contribution. For instance, if the takaful product is to
cover losses arising
from death, actuarial will apply the mortality table
or death rate in their pricing formula. The mortality table is derived based on
several years of study on the death rate of the population in depth.
In addition, actuarial will also apply other key
factors during the pricing such as expenses, profit margin as well as expected
future investment return for the fund. As
the estimation will usually apply some conservative assumptions to provide some
buffer against any negative impact, the actuarial team will also conduct a
regular assessment on the fund to ensure the assets are at least equal to the
liabilities of the coverages. This
process is commonly known as actuarial valuation and the regulator has set the
minimum criteria for such calculation. The
valuation exercise lead to the determination of surplus or deficit in the
takaful fund. Should there be any
surplus, they will recommend to the Board for sharing of surplus among the
participants otherwise a recommendation is made to the Board to rectify the
deficit via interest free loan known as Qard.
Those mentioned above are just handful of
responsibilities of actuarial team in takaful company as they are primarily
responsible and accountable to assist the management in making the right
decision from developing new products till ensuring that the takaful fund is
always sufficient to cater for all claims.
